Can Tata group's Chandrasekaran create a TCS in FMCG?
Nevin John June 27, 2020
Tata Group chairman N Chandrasekaran's big move to create a FMCG giant - combining the consumer products businesses of Tata Global Beverages and Tata Chemicals - is finding buyers in the stock market. The share price of Tata Consumer Products Ltd (TCPL), which launched on May 15, 2019, has recovered fully from the lows in March. It increased 70 per cent in the last three months. The company is the fourth largest business, considering its market capitalisation of Rs 35,500 crore, in Tata Group after Tata Consultancy Services or TCS (Rs 7.96 lakh crore), Titan (Rs 85,835 crore) and Tata Steel (Rs 36,750 crore). It is expected to overtake Tata Steel soon.
Tata Motors (Rs 33,450 crore), Trent (Rs 24,600 crore), Voltas (Rs 18,000 crore), Tata Power (Rs 12,565 crore) and Indian Hotels (Rs 9,720 crore) are behind TCPL. The value had crashed 40 per cent at the beginning of the lockdown.
TCPL's product portfolio currently spans a mix of iconic and emerging brands in tea, coffee, water, salt, pulses, spices and packaged foods, said Chandrasekaran in the latest annual report. "This gives us broader exposure to the large and fast growing FMCG market in India as well as the ability to explore options in the international markets where we have an existing strong base," he said.
The integration of the company's foods and beverages businesses in India is well underway. "Unlocking the synergies from this process, and using a combined scale to achieve rapid growth, will be critical for our future. We expect these revenue and cost synergies to add significant shareholder value," he added.
Analysts say that the future of the company will depend on its new brands and expansion of its existing brands in the new markets. "TCPL has the potential to become a major food and beverages player like Nestle India and Britannia in the near future, if Tata group nurtures it properly," a Mumbai based analyst said. Nestle India is valued at Rs 1.61 lakh crore in the stock market.
TCPL stock is the top conviction pick of brokerage house Motilal Oswal. The brokerage says that it is well positioned to ride the Rs 30 lakh crore consumption wave in India. "To realize its vision, the group has not only consolidated Tata Chemical's consumer business with TCP, but has also brought in a new CEO and MD to steer the company in the right direction. The merger marks the company's entry into an additional segment of staples, with an addressable market size of Rs 77,000 crore," the report stated.
Sunil D'Souza, who took over as the MD & CEO of TCPL in April, said, TCPL is the flag-bearer for the Tata group's aspirations in the FMCG space. The combination of the consumer products business of Tata Chemicals and the beverages business of Tata Global Beverages allows us to participate in opportunities spread across all three segments of the food and beverage consumer basket - in-the-kitchen, on-the-table and on-the-go. "We are integrating the businesses effectively and unlocking synergies in terms of growth and efficiency," he said.
The consumer products company has also deep penetration in the US, UK and Canada. "In India, we have a combined reach of almost 200 million households and a wide distribution network of 2.5 million retail outlets," he said. TCPL houses popular brands like Tata Salt, Tata Tea, Tetley, Eight O' clock and Himalayan Water.
TCPL's growth drivers include multiplying distribution, innovation and stronger cashflows to invest in growth, he said. The company has access to Tata Chemicals' innovation centre in Pune for product development.
D'Souza sees digital transformation as a key driver for growth. He said that the company is strengthening the capability in this area, including a digital platform for commodity buying, enabling the entire supply chain from demand planning to procurement and embedding digital technology and decision-making at the frontline of the sales organisation.
Consolidated revenue of TCPL grew by 33 per cent and consolidated EBITDA by 56 per cent in the last financial year. On a like-to-like basis (excluding the India Foods business) the topline growth was 4 per cent and EBITDA up by 12 per cent. It has net cash of Rs 1,300 crore on its balance sheet.
"We have a proven track record of creating category-defining brands, the likes of Tata Tea and Tata Salt. While there is still a large headroom for growth in our core categories, we see similar opportunities in the staples and packaged foods space too, where Tata Sampann is a mega brand in the making," D'Souza said in the annual report.