To achieve its aim of building a dominant, natural beverages brand in the country, the company has shifted its focus back to the highly profitable India beverage business.
Tata Global Beverages (TGB) is a natural beverages company with interest in tea, coffee and water. It is the second largest branded tea player globally with operations spanning over 40 countries. Branded products represent ~90% of its consolidated sales; of this, tea accounts for ~80%.
Winds of change are blowing within TGB. To achieve its aim of building a dominant, natural beverages brand in the country, the company has shifted its focus back to the highly profitable India beverage business. Besides, the merger of Tata Chemicals’ (TTCH) consumer business with itself marks the company’s entry into an additional segment of staples with an addressable market size of INR770b (apart from the current addressable market of INR270b in tea and coffee).
Currently, the India brand business contributes 50% to TGB’s consolidated revenue, which should increase to ~60% post amalgamation of TTCH’s consumer business.
Plans are afoot to deepen its core by strengthening its leadership position in tea and salt and aggressively expanding its new products (spices, pulses, liquid beverages, packaged foods etc.)
The merger of TTCH’s consumer business with TGB is in sync with the Tata group’s focus to create a single FMCG-focused company. As part of the transaction, TTCH would transfer the salt (brand), spices, protein foods and certain other food items and products to TGB, while existing shareholders of TTCH would be issued additional 289.4m TGB shares. The merger of TTCH’s consumer business with TGB offers multiple synergies, including higher outlet coverage, focused new product development, stronger cash flow generation and scale efficiencies. Management expects synergy benefit of INR1-1.5b to accrue over the next 18-24 months, post consolidation.
We initiate on the stock with Buy rating and SOTP based TP of INR347/share.