Tata Consumer Products: Simplifying Organizational Structure

Tata Consumer Products: Simplifying Organizational Structure

Market Outlook

According to the company, initially, the plantation business of Tata Coffee Ltd (TCL) will be demerged into Tata Consumer Products Ltd's wholly-owned arm Tata Consumer Products Ltd Beverages & Foods Ltd (TBFL), and then the remaining business of Tata Coffee Ltd which consists of extraction and branded coffee business, will be merged with Tata Consumer Products Ltd.

The demerger and merger of the company will happen through a composite scheme of arrangement. Under the scheme, shareholders of Tata Coffee Ltd (other than Tata Consumer Products) will receive an aggregate of 3 equity shares of Tata Consumer Products for every 10 equity shares held by them in Tata Coffee. This will be carried out through the issuance of 1 equity share of Tata Consumer Products for every 22 equity shares of Tata Coffee in consideration for the demerger.

For the merger, 14 equity shares of Tata Consumer Products will be issued for every 55 equity shares of Tata Coffee Ltd.

With an annual turnover of Rs.11,600 crore, Tata Consumer Products holds brands like TATA Salt, TATA Tea, Tetley, Eight O'clock, Himalayan Water, Tata Water Plus, and Tata Gluco Plus.

Tata Coffee Ltd is amongst the world’s largest integrated coffee cultivation and processing companies. It is the second-largest exporter of instant coffee. It is the exclusive supplier and roasting partner for Tata Star Bucks.

Tata Consumer Products (TCPL) has announced the reorganization of Indian and overseas business to simplify, align and synergize its business. 

The board has proposed the following for its overseas business:

Purchase of minority interests in Tata Consumer Products UK Group (89.85% subsidiary of TCPL) through a preferential issue of equity shares. Tata Consumer Products would issue 7.45 million shares to purchase 10.15% of Tata Consumer Products UK Group from its minority shareholder (Tata Enterprise Overseas).

Tata Consumer Products’ international tea business is housed under Tata Consumer Product UK Group (revenues of Rs22.9 billion and EBITDA of Rs.2.3 billion including about Rs.0.2 billion from Joekels JV in FY2021). 

As per management, the main objective of this reorganization is:

(1) To simplify the structure to about 22-23 legal entities over time from 45 legal entities at present. The management guided further simplification over the next 12-24 months 
(2) to drive cost synergies, tax efficiencies (international markets), and efficient dividend repatriation. The management expects 5-10% PAT accretion
(3) having a single listed entity of Tata Group in the FMCG space. This reorganization would be completed in 12-14 months subject to approvals. 

In the past two years, Tata Consumer Products has accomplished 

(1) leadership team restructuring
(2) S&D integration
(3) upgrade of IT systems (S4 HANA migration)
(4) expansion of direct/overall reach
(5) cost efficiencies and decent growth in a tough external environment
(6) geared for acceleration in NPD and innovation. 

After the merger announcement, the Tata Coffee Limited share price was up by 9.74 percent at Rs.215, whereas the Tata Consumer Products share price was up by 2.84 percent at Rs.764.

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