India’s fast moving consumer goods (FMCG) segment is fast shaping into a battlefield for two of the largest conglomerates in the market: the Tata group and Hindustan Unilever. With Tata Sons deciding to merge all its FMCG businesses into one umbrella this week, analysts say that the segment will get another sprawling FMCG giant in Tata Consumer Products Ltd., which is what the Tatas intend to call their new company.
According to Tata group officials, Tata Consumer Products (TCP) will be formed by merging Tata Chemicals’ (TCL) food and non-food consumer products business into Tata Global Beverages (TGBL). This is set to result in a company with a combined turnover of Rs 9,099 crore and earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 1,154 crore per annum. TCP will boast top-selling brands and properties like Tetley tea, Tata salt and Tata Starbucks, spanning segments like salt, snacks and spices to detergents and sweeteners.
While these already make TCP a formidable contender, it is the group’s plans to expand in and re-enter segments it had long abandoned that makes the looming contest interesting. For instance, officials have indicated that TCP will eventually foray into the dairy, home and personal care segments -- where HUL has a dominating presence. In fact, Tata Chemicals had already begun a pilot of a new detergent product — Tata DX — in West Bengal.
“This transaction is consistent with our strategy to deepen our India presence and transform into a broader FMCG player…. Consumer Products Business increases our exposure to high growth product categories and provides a strong platform to seize new opportunities in this sector,” said Ajoy Misra, MD & CEO, TGBL.
Analysts note that the deal could work out quite lucratively for both Tata firms. But, “most importantly, Tata Global becomes the vehicle to execute Tata Group’s aggressive aspirations in the B2C FMCG business (including home care and personal care at some point),” said Kotak Securities. This aspiration, said a senior FMCG analyst, is not something limited to the Tata group, with the sector seeing large scale consolidation accompanied by simultaneous business diversification in recent times. “Other companies have made similar decisions recently.
Britannia turned into a total food company from specialising in just biscuits, Amul is venturing into the non-dairy sector, Bajaj has become a full fledged consumer brand. By consolidating its FMCG businesses under one roof, Tata is signalling an aggressive expansion strategy in both existing and new segments,” he noted.
The Tatas plan to take on the dominant players — HUL and ITC — by leveraging synergies arising from the merger. Tata Chemicals has an immense distribution network, with over a billion Tata Salt packs sold last fiscal year. Group officials say they plan to double this network to 2.5 million retail outlets.