Tata Group brings some businesses under one roof to save expenses as it aims to have a single strong entity for FMCG space

• Tata Consumer Products announced the merger of all businesses of Tata Coffee with itself as part of a reorganisation plan.
• Investors of Tata Consumer Products and Tata Coffee cheered the development as it would unlock value for the company and boost profit.
• Analysts believe the strategy to simplify corporate structure and bring several subsidiaries under one roof will save much expense for the company and make the Tata FMCG play stronger.

Shares of two Tata Group companies -- Tata Consumer Products and Tata Coffee -- surged Wednesday after the former announced merger of Tata Coffee with itself.

The move is part of a reorganisation plan for the Tatas in the fast-moving consumer goods (FMCG) space and its strategic priority of unlocking synergies and efficiencies.

Let’s understand what does it change for the company and its investors
As per the restructuring plan, Tata Consumer Products (TCPL) will acquire 10.15% stake in Tata Consumer Products UK Group for ₹570.8 crore. Also, it will merge the Tata Coffee business with itself.

Under the scheme, shareholders of Tata Coffee (other than TCPL) will receive an aggregate of 3 equity shares of Tata Consumer Products for every 10 equity shares held by them in Tata Coffee.

“The restructuring initiative is in line with Tata Consumer Products’ strategic priorities – to unlock synergies and create a future-ready organisation. This exercise will enable us to better leverage our supply chain, create customer-focused business verticals, and accelerate decision making and execution,” said Sunil D’Souza, managing director (MD) and chief executive officer (CEO) at Tata Consumer Products.

Shares price of $TATACOFFEE.NSE and $TATACONSUM.NSE soar in morning trade on Wednesday after Tata Consumer Products announced the merger of all businesses of Tata Coffee with itself. Under the scheme, shareholders of TCL (other than TCPL) will receive an aggregate of 3 equity shares of TCPL for every 10 equity shares held by them in TCL. The coffee brands would combine with Tata Consumer will improve the Tata Consumer's supply chain and also will improve the company’s earnings.On technical front shares price of TATACONSUM & TATACOFFEE both are sustaining above the 50, 100 & 200 Days EMA. Momentum oscillators RSI continue its Higher Low formation MACD indicator sustaining above zero levels with positive crossover which is supportive for positive movement. Shares price of TATACONSUM is coming out of nearly four months consolidation. Additionally, the stock has also formed an Inverse H&S pattern on daily charts and has given breakout above the which suggests more upside in the prices.

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Analysts believe that there will be cut down in expenses, which may boost the company’s earnings by 5-10%.

“There will also be additional savings in admin and legal expenses. Tata Consumer Products will also benefit from some tax savings and utilisation of tax credits. However, it needs to issue 7.5 million shares and 23.8 million shares to acquire Tata Consumer Products UK Group Ltd and Tata Coffee. TCPL’s number of shares will increase to 953 million from 922 million now. Overall, there will be earnings accretion of 5-10%,” said analysts at ICICI Securities.

Tata Consumer Products has 45 global subsidiaries along with some joint ventures. Analysts say there is further scope to reduce the complexity of the structure and unlock further synergy benefits. “We expect TCPL to continue to announce further restructuring plans in FY23,” said analysts at ICICI Securities.
Further, the flagship FMCG company Tata Consumer Products may merge or consolidate more entities in the coming time to accelerate growth.

“Per management, the core objective of this reorganisation is to simplify structure to about 22-23 legal entities over time from 45 legal entities at present. The management guided further simplification over next 12-24 months, drive cost synergies, tax efficiencies (international markets) and efficient dividend repatriation. The management expects 5-10% PAT accretion, have a single listed entity of Tata Group in FMCG space. This reorganisation would be completed in 12-14 months subject to approvals,” said analysts at Kotak Institutional Equities.

Investors need to focus on the company’s earnings post the merger to understand change in revenue and profit.


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