Tata Chemicals deal to solve major issues faced by TGBL: Chandrasekaran

The merger of the consumer products business of Tata Chemicals with group company Tata Global Beverages Ltd (TGBL) will help the latter scale up its portfolio and increase focus on India operations, N Chandrasekaran, TGBL’s chairman said at the company’s 56th annual general meeting (AGM) in Kolkata. He also said that the merger would ensure better financial performance for the company.

Addressing the shareholders, Chandrasekaran said, “We want to gain scale in our operations and focus on the Indian market and this merger will play a key role. It will give us a broader base of consumer products and we can leverage on our existing consumer base. We want to build a very high class premiere consumer company”.

According to Chandrasekaran, TGBL is currently faced with three core problems that the merger – likely to be in place in another 12-18 months - will address.

In the recent past, the black tea market in developed countries, including the EU, UK and US, has stagnated, affecting TGBL’s topline. The company is heavily dependent on its black tea portfolio and around 40 per cent of its business comes from international operations. 

Chandrasekaran feels unless the company is able to put focus on India and increase the share of Indian revenues, the company’s earnings may fall short of “acceptable levels”.

The other big issue the company faces is that it needs to have optimal scale of operations and needs to increase its product portfolio.

“We need a larger portfolio and while tea and water is good, it won’t give you scale”, he said.

The third problem, according to Chandrasekaran, is the need to improve its financial matrix as the return on capital and investment is low.

“There is huge deployment of capital and the return has been inadequate. We need to address it”, he said.

The company believes that the proposed merger will help it to widen the product portfolio, as products like salt, spices and others from the Tata Chemicals' stable will land up in its kitty. The amalgamation, which is pending regulatory approvals, will also help TGBL focus more on India operations.

Chandrasekaran said initially the merged entity would focus on food and beverages. “We want to increase our high-end product portfolio and the faster we do it the better it is for us. But I’m unsure if whether we will go beyond food and beverages at this stage”, he said.

After the merger fructifies, the share of tea in the total revenue will be 57 per cent, followed by salt at 18 per cent and coffee at 13 per cent. The rest of the portfolio, comprising spices and others, will make up the remaining 12 per cent.

While TGBL has made up its mind to strengthen its India business, this year will mark the company consolidating its subsidiaries and exiting non-core foreign markets, where the company finds itself unable to scale up.

In the past, it had exited China and Russia.

Responding to a shareholder’s query, Chandrasekaran said the Indian Hotels Company, which owns the Taj chain of hotels, is considering rolling out specialty restaurants.