Tata in buyout discussions with five consumer brands
The company wants to bolster its position in the consumer goods sector
Tata Consumer Products Ltd, the food and beverage arm of the $103 billion Indian conglomerate, wants to go on an acquisition spree to bolster its position in the country’s competitive consumer goods sector and is in discussions to buy up to five brands.
A “significant amount” of the Mumbai-based firm’s future growth will come from inorganic expansion, Tata Consumer Products’ chief executive officer Sunil D’Souza said in an interview.
The firm, which sells Tetley tea and Eight O’Clock coffee, is “engaging seriously” with a number of companies where it sees decent valuations, he said. D’Souza. however, did not identify potential targets.
“We are reaching out to potential targets to have a chat to see if there is interest,” said D’Souza, who took charge at the company two years ago after stints at PepsiCo Inc. and Unilever Plc.
“There are places where valuations are high, but given the macro environment, given the liquidity and tightening, I am keeping my fingers crossed that they will become much more affordable,” he said.
Shares of Tata Consumer Products climbed as much as 3.2% on Wednesday in Mumbai compared with the 0.9% intraday rise in S& P BSE Sensex, according to data compiled by Bloomberg.
Since its formation in 2020 during an ongoing streamlining of Tata’s 153-year-old business empire, which operates across several sectors, Tata Consumer Products has widened its portfolio by acquiring stakes in companies such as bottled-water business NourishCo Beverages Ltd., as well as cereal brand Soulfull.
The conglomerate will likely face stiff competition in the sector from existing global giants such as Unilever, as well as tycoon Mukesh Ambani’s Reliance Industries Ltd, which plans to acquire up to 60 small grocery and household consumer goods brands within the next six months, according to Reuters.
As India reopens after the curbs imposed to contain the spread of coronavirus, D’Souza is also accelerating the expansion of Starbucks Corp. outlets across the country.
It added 50 new cafes in the last financial year, taking its presence to 268 stores across 26 cities.
Tata, which has a joint venture with the US coffee behemoth, wants to have more than 1,000 Starbucks outlets in India, D’Souza said, but did not give a timeline for that target.
“We’ve got an enormous runway in front of us in India,” he said. “Now the game is how fast can we scale?”
Tata’s expansion comes at a time of severe inflationary turmoil as the war in Ukraine, national agri- commodities export bans, and choked supplychains push up input costs for consumer goods companies.
Companies, including Unilever’s India unit and domestic staple firms Britannia Industries Ltd. and Dabur India Ltd., have reacted by raising prices in the highly price conscious market of about 1.4 billion people, as well as cutting portion sizes in their cheapest packages.
Tata has managed to weather that impact as the prices of the three main products it sells, coffee, tea and salt, have remained relatively stable, according to D’Souza.
However, the firm feels the “niggling” increases in freight and packaging costs.
Economic and political turbulence on the neighbouring island of Sri Lanka, a major black tea exporter, has kept tea prices steady.
India is likely to have a good crop this year, which would have forced tea prices down in the ordinary course, he explained. However, the disruption in Sri Lanka has stymied its exports, preventing a drop in prices.
“Everyone who’s now exposed to wheat, sunflower oil, palm oil, I think they are bearing the brunt right now,” he said.