Tata Tea brews consolidation plan

24 Mar 2009

 The Tata group is learnt to have set in motion a major revamp exercise at group company, Tata Tea that would consolidate varied beverages businesses such as tea, water and soft drinks under a single entity to simplify operational issues and also raise funds. The consolidated entity will result in a clear holding, operating and reporting structure, which would cut costs sharply. As part of the move, the group is also exploring plans of merging Mt Everest Mineral Water with Tata Tea, and consolidating the Himalayan brand under the Tata fold.

Tata Tea is keen to transform itself quickly into a global beverages company, focusing primarily on the growing health and wellness segment, with the youth as a major driver of growth. While the traditional black tea market is sluggish, markets for speciality tea, green tea, ready-to-drinks and fruit Juices are growing sharply.

As per the financials of listed beverage companies under the Tata group, the combined entity had total sales of around Rs 5,370 crore and a net profit of Rs 1,560 crore. The debt of this combined entity alone is Rs 3,475.35 crore while total liabilities are Rs 8,511.45 crore. But these numbers don’t include the unlisted overseas entities. The group has beverage companies, under Tata Tea, in the UK, the US and plantations in other countries as well.

Tata Tea, the main listed company of the Tata Group in the beverages segment, is 23% owned by Tata Sons, the Group’s holding company. Tata Coffee, which is also listed, is 35% owned by Tata Tea. Tetley, the British tea company, is 100% owned by Tata Tea.

While it is not clear whether the consolidated entity would be a local firm or an international company, people familiar with the development said Tata International could house the consolidated entity. Tata International is a trading house with a topline of $850 million in 2006-07, according to its website. Merging the tea company with, say, Tata International could be to create a large consolidated entity where the group could dilute a minority stake to raise funds.

Costs are the main reason for consolidation; however, bankers who have worked closely with the company say such a single consolidated entity could also be used to raise money for future expansion needs and to also reduce the group’s debt. crackcrack

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