Coffee, Tea… And More

Known as a beverage maker, the recently rechristened Tata Consumer Products now aims to go the whole hog

- SAMAR SRIVASTAVA

Why are we not in the top echelons of Indian consumer businesses, was a question that resounded often within the hallowed walls of Bombay House, the headquarters of Tata Sons. The 152-year-old business house had some of the biggest consumer brands in the country across sectors—from automobiles and jewellery to consumer durables and beverages. Over the years it had shown the capability to invest in any business it wanted to. And a competent set of managers ran these businesses. Despite this, Tata Sons found itself cut off from the 50 times earnings multiples that Indian consumer companies commanded.

The closest it had come to a consumer business was with a company that has recently been christened Tata Consumer Products (TCP). It had a solid tea and coffee franchise—Tata Tea, Tata Coffee—as well as a premium product in Himalaya water. The global portfolio included Tetley Tea and Eight O’Clock Coffee.

But partly on account of the price it paid for acquiring Tetley and the way its business was structured in India, its return ratios were uninspiring for fund managers to consider buying the stock. Return on equity stood at 6 percent in the year ended March 2020, compared to 86 percent for Hindustan Unilever (HUL) and 35 percent for homegrown Marico.

Operating margins were in the high teens and decadal growth rates for sales and profits were 5 and 4 percent respectively. (Voltas, another group company in the consumer durable space, also had an indifferent decade, with profits growing at 4 percent a year.) For much of the last 10 years, the market has priced it at between 15 and 20 times earnings. In short, it was hardly the premium valuation that a top business house would be happy with.