For decades, fast moving consumer goods business for the Tatas largely comprised iodised salt and branded tea. Over the past decade, however, it has taken big steps in numerous new categories from pulses to breakfast cereals and branded coffee to fortified water—number of them through acquisitions. Now, the company is ready to expand further, with plans to acquire several more companies at a time FMCG companies are faced with challenges from rising input costs and slowing consumption.
Tata Consumer Products, the flagship FMCG company of the Tata Group, was itself born out of a merger. In 2020, Tata decide to demerge the consumer products business of Tata Chemicals into what was then Tata Global Beverages. The merged entity became Tata Consumer Products. This deal helped the Tata group create a focused consumer products company, with brands such as Tata Tea, Tata Sampann and Tata Coffee Grand.
The Tata Group has made several acquisitions in the consumer goods space over the past couple of decades, most notable among them being the British tea company Tetley. Its other major acquisitions included US-based Good Earth Teas and Eight O’Clock Coffee.
More recently, it acquired Kottaram Agro, the maker of Soulfull brand of breakfast cereals in 2021. In November last year, it bought 100 per cent equity shares of Tata SmartFoodz from Tata Industries, helping Tata Consumer expand into the growing ready-to-eat foods category under the Tata Q brand.
It has also strengthened its bottled beverages business through the acquisition of PepsiCo’s stake in NourishCo Beverages, a 50-50 joint venture between the two companies. In March this year, Tata Consumer also announced plans to merge the businesses of Tata Coffee such as extraction and branded coffee into itself.
Now its reportedly hungry for more. Sunil D’Souza, CEO of Tata Consumer Products told Bloomberg that a “significant amount” of its future growth will come from inorganic expansion.
In the year-ended March 2022, Tata Consumer reported a consolidated revenue of Rs 12,425 crore, compared with Rs 11,602 crore a year ago, a growth of 7 per cent. Its consolidated net profit for the year stood at Rs 1,015 crore, up 9 per cent from a year ago profit of Rs 930 crore.
Helped by the streamlining of the group companies and acquisitions so far, the company has become a strong player in the foods and beverages business and the market has given a big thumbs up. Since the beginning of 2020, Tata Consumer shares have more than doubled to close at Rs 754.65 on May 18, compared with Rs 324 on Jan 1, 2020. In the same period, the BSE FMCG index has gained 21.3 per cent. What the company does next will be keenly watched.
Speculation is the company may now be looking at expanding into the home and personal care segments, as it looks to become a large and diverse FMCG company. While many of these categories already have strong brands and fairly deep penetration, the Tata brand name should help the company make inroads and gain share.
“Tata Consumer was formed to fulfill the FMCG ambitions of the Tata Group. As step one we have done a F&B company and moved from being just beyond the tea and salt company. For the last two years, while we have been doing a bit of scale up, the focus has also been to simplify and synergise the businesses. Now you could see a traction on the scaling up perspective,” D’Souza said in a post-earnings conference call this month.
While he didn’t divulge the areas the company was looking at expanding into by buying companies, scale of the category, margins in the category, number of brands at play in the category and the capabilities that the Tata Group has will be key things Tata Group will watch out for, he said.
“Every category that we will consider we will also look at is the best bang for the buck going organic or inorganic. So we will become a large FMCG company, we will have scale, we will deliver superior financial returns, but over a period of time,” said D’Souza.
A key to Tata Consumer’s success will be a strong focus on sales and distribution. As of March 2022, the company directly reached 1.3 million outlets, which should grow to 1.5 million by March 2023. Retail touch points should grow to 4 million by September 2023 from 2.7 million currently. It has quadrupled its rural and semi-urban distributors to more than 8,000 levels, noted Sumant Kumar, research analyst at Motilal Oswal Financial Services.
“The unlocking of sales and distribution synergies from the merger of group companies has started to yield results. This is evident from the market share increase in Tea (+100 basis points year-on-year) and Salt (+400bps) as of March 2022, backed by an increase in numeric distribution,” said Kumar.
He also expects Tata Sampann to grow in high double digits and capture market share from unorganised players by increased distribution and new product launches.
Over the next three years, Tata Consumer’s sales are expected to grow at a compounded annual rate of 10 per cent, while profit is seen growing 29 per cent, the analyst added.
