Tata Consumer aquired Tata Q brandn for 395 cr
Tata Smartfoodz Limited (“Target Company”), is
an Indian company inter alia engaged in the
business of manufacturing, distribution, and
marketing of ready-to-eat packaged food products
under the “Tata Q” brand.
Good strategic move… Though valuation of 395cr for 14cr turnover in 2021 seems expensive?
Gradually , all Tata consumer products may find its way in to these off line stores of Big Basket, though initially it is vegetables fruits.
It is a strategic move by Big Basket , predicting strong competition in on line stores/formats from Reliance Mart and now that Amazon has entered in to fresh vegetables fruits groceries same day delivery.
From Ken - Tata Consumer leans into a solid diet
On 12 November, Tata Group’s FMCG arm—Tata Consumer Products Ltd (TCPL)—bought Tata SmartFoodz, a maker of ready-to-eat (RTE) foods, from another group company for Rs 395 crore (US$53 million).
This is the third big move that TCPL has made in foods, a business that it is relatively new to. Until February 2020, TCPL was called Tata Global Beverages Ltd (TGBL) and known for Tata Tea, Tetley, and Himalayan bottled water. But a name change was necessitated because, in May 2019, the foods business of Tata Chemicals had been folded into TGBL to present a unified front for the Tata Group in FMCG.
The deal brought the country’s top salt brand Tata Salt and the pulses and ready-to-cook (RTC) foods brand Tata Sampann to TCPL.
Then, in February this year, TCPL acquired millets-based cereals and snacks brand Soulfull for Rs 156 crore (US$21 million).
Now, with the purchase of Tata SmartFoodz, TCPL is further entrenching its presence in the segment. Tata SmartFoodz was incorporated in November 2017 as a unit of Tata Industries, which acts as the Tata Group incubator. But SmartFoodz began operations only in 2019. So it’s not a surprise that in the year ended March 2021, it reported a meagre Rs 15 crore (US$2 million) in revenue and a net loss of Rs 90 crore (US$12 million).
TCPL’s increasing love for foods can be explained quite simply: they have higher margins than beverages, even if the former is smaller in size.
The contribution of new categories to TCPL’s domestic business could double to 12% in the year ended March 2026, according to a June report by the investment bank and brokerage Goldman Sachs.
This is in large part due to TCPL’s acquisitions. And interestingly, each acquisition links back to the previous one.
For instance, Soulfull’s RTC offerings such as instant dosa mixes complement similar products from Tata Sampann. And Tata SmartFoodz’s biryanis, pastas, and biryanis—sold under the Tata Q brand—works as an extension of Soulfull’s RTE foods, even if the latter’s health positioning contrasts with the former’s proposition of convenience. Soulfull’s products include millet muesli and a ragi (finger millet) alternative to Kellogg’s Chocos.
As TCPL builds a diversified FMCG presence, it’s also getting rid of those businesses that could be a distraction. In October, it moved its 12 Tata Cha tea cafés in Bengaluru to group company Indian Hotels Company Ltd. “This is in line with our strategy of streamlining and simplifying our operations,” Sunil D’Souza, managing director and chief executive of TCPL, said at that time. “Though it is a relatively small venture in its current form, exiting Tata Cha will enable us to sharpen focus on our core FMCG business.”
But it’s not exiting cafés altogether. TCPL has a 50:50 joint venture with Starbucks and operates 233 outlets in 19 cities. And that’s because of the potential revenue growth of the JV, in which TCPL has invested nearly Rs 400 crore (US$54 million), according to Goldman Sachs.
The expansion of TCPL’s foods portfolio has also been a big reason for the rally in its stock. The company’s shares have risen almost 55% over the past year, compared to a 21% rise in the Nifty FMCG index. But its market capitalisation of Rs 75,000 crore (US$10 billion) is only 40% of Nestlé India’s.
TCPL, like any listed company, will have to continue meeting investor expectations on revenue and profit growth. But a bigger achievement in the coming years will be to make consumers think of FMCG products beyond tea and salt when they think of the Tata brand.
Three Key Points: 1) We want Sampann to be the Tata Salt of tomorrow; 2) The Indian staples industry is largely unorganised with the share of branded players at less than 10%; 3) Sampann is a “strong growth" lever for the company as it allows TCPL to extend beyond salt and claim categories which are significantly large—like staples.
Disc: Invested
Starbucks is growing at a healthy rate.
Recently started tracking this business, brands are great, reach is best growth is going good but i Don’t understand their single digits return ratios! (Roce and roe) what am i Missing here? Is it a serious issue or is is just because of some different accounting standards?
Also i read about its goodwill because of which this might be a case
Help me understand how this works please
Absolutely right. They are looking to export Tata Q products and said that Indian market size is 150CR whereas overseas market size is 1500-1700CR. Approvals are at different levels for export. They ventured into dry fruits as well under sampann brand. Down the line after 1 year story will be altogether different for TCP- Excerpt from Q3FY22 Concall Transcript
Hi Suyog,
I took a look into their balance sheet and try to figure out why the ROE is very low. See my findings below,
It is 14K Cr Vs 7K Cr (Dabur) Vs 10K Cr (Godrej)
Since Reserves and Share capital goes into the denominator a higher reserve can also mean lower ROE
See Screenshots of NPM % for the last 10 years
TATA
Dabur
Godrej
TATA has a lower Profit Margin due to High material cost which can be attributed to low margin in their Product lines (Like Dhal, Salt) or high raw material cost (Like Tea)
Let’s assume TATA Consumer has reserves similar to Dabur then their ROE would be 13%. But High reserves also are an indicator that it is not being deployed for generating more returns.
To me, it seems to be a concern as TATA has a PE of 78 Vs 54 of Dabur and 46 of Godrej. There is high expectation against this stock with renewed interest due to
So I’m looking forward to FY22 to see how TCPL lives up to its promises.
Disc: Invested
You can have a look at my holdings here: Kamal's Retirement Porftolio - #13 by casperkamal
Thanks for explaining. So basically they aren’t getting enough return on their Equity so efficiency is not there.
Or we can say that the surplus reserve they have , they aren’t deploying to get more returns on capital…
The valuations with respect to the capital allocation and margin profile looks absurd
Well I would be more concerned on the margins. The margins are par below other fmcg they got to fix it first. In terms of capital deployment I think the recent acquisition of soulful at 155 cr and Tata Q at 392 cr are deployment of capital combined along with investments in Starbucks expansion and sampann should support better capital use.
Coming to valuations yes they are pretty high but markets are forward looking so if the directions aren’t the way expected the PE can contract to industry avg. If EPS grows by 25% and PE contracts to 50 then stock value at 750 for FY23. The stock is currently priced in for FY23.
Yes in their recent call transcript they have highlighted that the total Indian market size is only 150 cr so why would they acquire such a business paying a high price although it has future potential. The export market is 10x of Indian market but not sure if that is in the spectrum of TCPL now.
Some competition form other foreign Brands in Starbuck partnership is also comming.
Starbucks currently have around 250 stores while they have plans to open around 120 in next 3 years and 250-300 in next 5-6 years.
Traditionally Tim Horton is quite cheaper then Starbucks so can have a great target for grab and do type coffe that may it be CCD, Starbucks or even dunkin and Costa coffee have not been able to capture.
Just to see there Punjab sales could be quite good as in Canada tim horton is a household staple name.
If anybody in Chandigarh or Delhi it may open before August.
Unlike US or Canada India is not a market where consumers grab a coffee on the go
Here Coffee drinking is more about Social Outing or Meeting.
Tim Hortons serve food on go food at reasonable prices. Unlike it Indians prefer to have Hot Breakfast that too traditional dishes (Kellogg’s fail to introduce Cold breakfast in India)
Based on above facts new chains should not be a botheration for Starbucks which offers premium coffee and I don’t know Why it’s stores are mostly packed (even though Coffee and Other dishe as are priced at higher range.
Starbucks in India is also like a co-working space for professionals unlike other coffee chains. There is no disturbance from the staff side even if you’ve only taken one drink and sits there for couple of hours. That’s the reason people return to there and I’m a regular at my nearest starbucks for meetings and other writing purposes.
Yes, even during COVID19 times, the Starbucks outlets are mostly crowded in Chennai. The one in OMR is normally full whereas it’s not the case for Cafe Coffe Day. With normalcy returning, we need to see how this translates to revenue/profits in the books of Tata Consumer.
This may not have any immediate material impact to the partnership with Tata Consumer in India. Wait and watch on what direction the new CEO will put in place for emerging markets like India.
Consolidation of shareholding continues. The Foreign company in question has not been named.
Merger of Tata coffee with Tata consumer will happen where Tata coffee shareholders will get 3 (three) equity shares of TCPL for every 10 (ten) equity shares held by them in TCL.
Considering the merger ratio 3 for 10…
Buying Tata coffee tomorrow will be smart way to buy tata consumer? Correct me if I am wrong
