TATACOFFEENSEApril 4, 2022

Tata Coffee Limited

6,836words
75turns
13analyst exchanges
6executives
Management on call
Jaykumar Doshi
KOTAK INSTITUTIONAL EQUITIES
Nidhi Verma
HEAD INVESTOR RELATIONS - TATA CONSUMER
Lakshmanan Krishnakumar
EXECUTIVE
Ajit Krishnakumar
COO - TATA CONSUMER
Chacko Purackal Thomas
MANAGING
Venkat
EXECUTIVE DIRECTOR & CFO - TATA COFFEE
Key numbers — 31 extracted
11600 Crore
ata aspiring for a larger share of the FMCG world. Number two branded tea player globally, FY2021 11600 Crores, 200 million households, reached to 2.6 million retail outlets, among the top 10 FMCG companies
200 million
or a larger share of the FMCG world. Number two branded tea player globally, FY2021 11600 Crores, 200 million households, reached to 2.6 million retail outlets, among the top 10 FMCG companies in India.
2.6 million
. Number two branded tea player globally, FY2021 11600 Crores, 200 million households, reached to 2.6 million retail outlets, among the top 10 FMCG companies in India. We are a branded co
100%
a Coffee Ltd.). As a result of this we have very clear shareholding of TCPL and TCPL would have a 100% subsidiary a wholly owned subsidiary which holds the plantation entity. This is beneficial for bo
10.15%
The second announcement was for the purchase of minority interest in TCP UK from TEO. TEO owns 10.15% in TCP UK; with this swap TCPL would own 100% ownership in TCP UK , as a consideration TCPL will
0.8%
own 100% ownership in TCP UK , as a consideration TCPL will issue 7459935 equity shares which is 0.8% stake computed post dilution to TEO. This transaction is subject to the shareholders approval as
5%
rms of actual numbers at the end of this our estimate is that we would be accretive on the EPS by 5% to 10%, so 5% to 10% incremental in PAT. L. Krishnakumar : Just to clarify there is an over
10%
actual numbers at the end of this our estimate is that we would be accretive on the EPS by 5% to 10%, so 5% to 10% incremental in PAT. L. Krishnakumar : Just to clarify there is an overall sch
10.11%
ou that was detailed. Follow-up question is could you explain us the valuation for acquisition of 10.11% minority stake of the international business and how you valued it and the rationale.
74.5 lakh
multiples as well as DCF Jaykumar Doshi: Understood so if I back calculate today's price and 74.5 lakhs shares that you will be issuing it comes to about 5500 Crores. So is there any cash in those ent
5500 Crore
f I back calculate today's price and 74.5 lakhs shares that you will be issuing it comes to about 5500 Crores. So is there any cash in those entities or it is entirely… L Krishnakumar: That will reflect t
rs,
ere any cash in those entities or it is entirely… L Krishnakumar: That will reflect to the valuers, they have considered the latest financials and everything that is in the entity. So there is cash
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Guidance — 20 items
Nidhi Verma
opening
“The legal structure that we have in Tata Consumer, we had 45 legal entities which we now aim to consolidate over a period of time, which will help us and align legal and management structures converging all the minority interests of all subsidiaries into Tata Consumer Products.”
Nidhi Verma
opening
“Now in terms of the reorganization essentially we will do a de- merger of the plantation business of Tata Consumer into the new wholly owned subsidiary of Tata Consumer Products step one, step two is the remnant business of Tata Coffee which is primarily the extractions will be merged into TCPL.”
Nidhi Verma
opening
“Now while these are two steps they will be done almost simultaneously and therefore the minority shareholders of Tata Coffee will receive a swap for the Tata Consumer Products share.”
Nidhi Verma
opening
“In terms of timeline now that the board has approved we will be filing it with stock exchanges, conducting a shareholders’ ballot to consider approval for preferential issue.”
Bharat Sheth
qa
“Sunil is that just to understand there is a plantation business will remain separately in under the 100% subsidiary of TCPL .Is that correct or later that also we may plan to hive it off.”
Bharat Sheth
qa
“We aim to create a dedicated plantations vertical to build efficiencies into the entire plantation space per se, but overall between the international and this reorganization it also gives us clean ownerships which enables any further restructuring that we want to do at a later date.”
Jaykumar Doshi
qa
“Would it be possible for you to give us some color in terms of what are the synergies that you expect from this consolidation exercise and simplification both in India and internationally and if there is any tax benefit that you were not able to utilize earlier for the TCP and UK operations that you may now be able to do once it becomes a wholly owned subsidiary.”
Jaykumar Doshi
qa
“So we will be releasing a lot of these pieces as we go forward, significant benefits will be in the places where we have got certain businesses which are taxpaying versus some which could have tax offsets there will be some efficiencies but overall the exercise is aimed to streamline and structure in terms of driving multiple pieces.”
Jaykumar Doshi
qa
“But the benefit that Sunil talked of of 5% to 10% is what we expect to start realizing once all this process is complete and that could be anywhere starting between 12 to 24 months.”
Jaykumar Doshi
qa
“The approval of NCLT takes time while some activities we will start in parallel, but this is where we expect to end.”
Risks & concerns — 2 flagged
So there are quite a few things which have changed and we got very strong market share in some geographies though UK has been a bit of a challenge as we have been saying but there are new opportunities and new markets that we are getting it and overall share of what the new brands are doing.
— Sumant Kumar
And our shareholding of the Tata Sons is going to decline from 34.68 to 33.8 correct with all the transactions.
— Sumant Kumar
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Q&A — 13 exchanges
Q
Sunil is that just to understand there is a plantation business will remain separately in under the 100% subsidiary of TCPL .Is that correct or later that also we may plan to hive it off. Sunil D’Souza: Essentially right now we are doing a demerger and merger scheme of Tata Coffee. Tata Coffee has two pieces of businesses- plantations and extractions. We have just formed a wholly owned 100% subsidiary of TCPL, which will house the plantations business of Tata Coffee. We aim to create a dedicated plantations vertical to build efficiencies into the entire plantation space per se, but overall bet
Bharat Sheth
The purpose of asking this question is because what I understand if you correct and correct me that any company having a plantation business FII can not have, there is a limit on the FII holding. So will that affect us? No it is not going to matter at all. It only helps us to consolidate our plantation interest in an unlisted entity which is a wholly owned subsidiary and we are looking to overall improve efficiency of all the verticals that we have and your second part of the question on hiving off and all that there is no such plan at this stage. We are only focusing on simplifying and, build
Q
Hi! Thanks for the opportunity. Would it be possible for you to give us some color in terms of what are the synergies that you expect from this consolidation exercise and simplification both in India and internationally and if there is any tax benefit that you were not able to utilize earlier for the TCP and UK operations that you may now be able to do once it becomes a wholly owned subsidiary. Sunil D’Souza: So effectively this entire exercise achieves the following objectives. Now number one it aligns the corporate structure with management and administrative structures, converges all the mi
Jaykumar Doshi
Thank you that was detailed. Follow-up question is could you explain us the valuation for acquisition of 10.11% minority stake of the international business and how you valued it and the rationale. Sunil D’Souza: The valuation has been done by professional valuers who have also done the swap ratio and whatever numbers are implicit in the sum of parts valuation for the respective parts of international has been applied and the same valuation for TCPL shares have been considered in arriving at the swap ratio and my understanding is the valuers use a combination of DCF, comparable multiples and o
Q
A few clarification when we acquired Tetley the acquisition cost was $450m and when we calculate that this is coming around say 3300 Crores, 3400 Crores but today's price we are valuing this company 5600 Crores. So what had changed over the years for the higher valuation of Tetley.
L. Krishnakumar
I do not understand the question. So you should, the business is changed right. Yes, when we acquired Tetley, that we acquired Tetley at say $450 million. L. Krishnakumar : No please be clear the business is obviously undergoing a lot of change. Yes, so since 2000 when we acquire Tetley the valuation was we have given $450 million dollars and today at the 5600 Crores around we are paying $750m. So why is the valuation is high from what we have acquired this asse.t I do not think the overall operating performance of the company has increased over the year. Sunil D’Souza: So let me come in, so t
Q
Hi! Thank you for taking my question. Just want to check, can you help me understand what percentage of the international tea business of TCPL is actually housed in this entity for which we are buying the minority stake. L.Krishnakumar : That I am just trying to understand where and what this is going to lead because I do not want to put an arbitrary percentage but substantially all of the international tea business is what I would say.
Richard Liu
So essentially the whole international business that TCPL has that almost that entire thing is housed in this entity for which we are buying this additional 10% stake. L.Krishnakumar : There is small element of ownership of the coffee business US coffee business as well, some portion I think but substantial part of the tea business is there in this entity. Got it thank you, and with regards to all the coffee plantation the estate etc., that you are now transferring to this wholly owned subsidiary is there a stamp duty implication for the transfer since I think even I guess there will be massiv
Q
Hi! Sir and thanks for taking my question. I have two. So first of all Eight O'Clock you have mentioned that the minority stake you will be buying from this transaction but I am unable to understand so can you clarify how that transaction is working because I think you had 79% consolidated stake in that entity. L.Krishnakumar : There is Eight O'Clock is partly owned by Tata Coffee and party owned by TCPL, you are aware of that.
Sameer Gupta
Yes. L.Krishnakumar : Now in the Tata Coffee, TCPL owns 57%, 58% so balance I am driving it up to 60%, say 40% is held by other shareholders. Yes. L.Krishnakumar : So that 40% so once these other shareholders so that 40% of 50% is a 20% which is outside interest today when you talked of 79%. So when we give them shares of TCPL then it becomes 100% owned and the entire minority stake is only in the TCPL ownership so that is how it will work broadly. I will probably take this offline. Second question Sir is that this 10% preference share is to Tata Enterprise Overseas which is a promoter entity
Q
Hi! Sunil and team. Thank you for taking my question. Essentially my question was also on Eight O’Clock bit maybe you have either somehow clarified that I had understood. So Eight O’Clock was 49% owned by Tata Consumer and 51% was owned by Tata coffee but if you are essentially merging Tata Coffee into Tata Consumer then by default you will be issuing shares. So there is no other transaction specifically that is happening in industry only by virtue of this transaction to the 43% shareholders you will have to issue shares of Tata Consumers well is that the correct understanding. L.Krishnakumar
Alok
Got it and second question was as we look at the segmental reporting of Tata Coffee be it in terms of how they give it and I am sorry I am just seeing that segmental reporting plantation and value added. So basically extraction and branded falls into the value-added piece so if you want to now analyze in terms of margins etc. how it will look post-merger this is how we need to sort of look at or is there any other adjustment that you would need to do. Sunil D’Souza: Yes, broadly the extraction business is part of value-added but we are yet to work through the exact segmental reporting and what
Q
I just wanted to check with respect to the benefits for the Tata Consumer shareholder you mentioned between 5% to 10% could you just help us understand will it be driven by largely the efficiencies or it is more of an administration cost that will be kind of leading to that kind of efficiency for you because that is quite a large number for the consolidation. Sunil D’Souza: So it is driven by a mix of factors which includes tax efficiencies, which includes dividend and withholding tax benefits as well as management and operational cost synergies which we will derive and revenue. So apart from
Trilok
And of this, is that fair to assume that the taxation related benefit will be largest of all this from the overall number of variables that are highlighted. We are not commenting, we have lot of steps to complete I think there is the opportunity in all these areas some of it and we need to do more detailed work. So this is an initial estimate so I would not say one is larger than the other. It is driven by overall business rationale of bringing businesses together, simplifying and the simplification will give us both business benefits and some taxes. And the second question is with respect to
Q
Yes Sir my questions are answered, some queries I will take it up with Nidhi. Thank you.
Management
Q
Hi! Thanks for the opportunity. My question is to Sunil. Sunil since you took charge of the company and you have always maintained consistently in fact that M&A in any form you will see from two lenses which is one is strategic and another is financial. Now strategically explained here but financial when you see one core part of our narrative for last one and a half year has been that it has to be around capital efficiency part so we have always defended our past capital efficiency track record on the ground that incrementally it will actually improve so if you can give some understanding on h
Tejas Shah
But it does change nature of the business more in terms of commoditized or B2B in some form versus B2C that we are chasing aggressively for last one year. Sunil D’Souza: So that is one way of looking at it, the other way of looking at it is we are already consolidating Tata Coffee into our financials any which way so we are already exposed to if you call it commoditization, we are already consolidating it and exposed to it in a form. All that we are doing is we are making it much more efficient that is number one. Number two on the extraction business we do believe that it is not only commodit
Q
Hi! Thanks for giving me the opportunity for the follow-up question. My first question was the name of the new company that we have made is TCPL Beverages and Foods Limited. Now essentially at this point in time the business that is there is plantation. Do we probably have a game plan that continue the fact that you use beverages and foods more do we need to think more into that, that at some point in time you may look at the back end for your compounded into this or that is maybe thinking too much at this point in time.
L.Krishnakumar
If you read the scheme document which will be available soon it will be clear. It is just a company that we had which we are using. Over time we will have plans to revert the name back to either Tata Coffee or some other name that we decided so that is what I want to say. Sure I have not got a chance to look at it. My second and final question is when we talk about the valuation for the UK transaction deals, I think to one of the previous participants you answered that there were certain valuation methods was used etc. Then the valuer also values at that point in time the value of Tata Consume
Q
Hi! Thanks for the follow-up opportunity. My question is that you talked about simplification from 45 entities legal entities to 22, 23 now post this restructuring exercise. Is there room for you to simplify the structure further or you think after this exercise you will be done with, you will have the most optimal structure. Sunil D’Souza: So effectively with the two items that we have announced today which is effectively the pref.issue and buyback of the TEO stake and swapping it into TCPL number one. Number two is Tata Coffee demerger, merger scheme and getting into one legal entity this is
Jaykumar Doshi
Perfect thank you and one follow-up for LKK so did I hear it 5% to 10% accretion at PAT level or is it EPS level because there is some dilution as well so… L.Krishnakumar : It does not matter if the dilution is marginal something but we were really talking about the PAT level, the dilution is marginal not going to be significant it will still remain within that band I think would not make it really change, but we were talking about PAT. Understood thank you so much.
Q
Just a clarification we have seen the total number of share 922 million share and when we considering a 10 share of Tata Coffee, they are getting a three share of TCPL so that is coming around 56 millions here and you are issuing to Tata Sons7 millions share. So total number of share is coming around 985 and the dilution is a 7% when you are talking about the PAT level synergy and all is a 5% to 10%. L.Krishnakumar : I will take it offline, I do not think your numbers are correct if you can take it offline please, give your calculation to Nidhi and we will look at it and comment.
Sumant Kumar
Thank you so much.
Q
Thanks. So thanks everyone, I recognize that we gave you a very short notice and there was a lot to digest. So request you all to go through the presentation and materials that we have shared and I hope we were able to answer some of your questions. For any follow-up questions please feel free to get in touch with me and we will try to answer it. Thank you so much again for spending time so late in the night. Thanks.
Management
Speaking time
Moderator
16
Sumant Kumar
12
Jaykumar Doshi
8
Richard Liu
7
Sameer Gupta
6
Alok
6
Nidhi Verma
4
Trilok
4
Bharat Sheth
3
Tejas Shah
3
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Opening remarks
Jaykumar Doshi
Good evening everyone, on behalf of Kotak Institutional Equities I welcome you all to conference call of Tata Consumer Products & Tata Coffee. We have with us the senior management team of Tata Consumer Products & Tata Coffee. I will now hand over the call to Nidhi Verma – Head Investor Relations who will introduce the team. Over to you Nidhi. Thank you.
Nidhi Verma
Thanks Jay and thanks Kotak for hosting us. I welcome everyone, I understand it is late in India and Asia, but we thought it is important to talk about this event. So I am joined by my colleague Sunil D'Souza – Managing Director and CEO of Tata Consumer, Mr. L. Krishnakumar – Executive Director & Group CFO, Mr. Ajit Krishnakumar – COO - Tata Consumer, I also have from Tata Coffee Mr. Chacko Thomas – Managing Director & CEO - Tata Coffee and Mr. Venkat – Executive Director & CFO - Tata Coffee. As you all know the purpose of the call today is to discuss the outcome of the board meetings of the two companies. I hope you have had the opportunity to download the presentation which is available on our website and also on the stock exchange. If you have not done that, we will request you to please download a copy. For further proceedings I will now hand it over to Sunil. Sunil over to you. Sunil D’Souza: Thanks Nidhi. Like you said we had back-to-back board meetings of Tata Coffee and Tata Co
Nidhi Verma
Sure thanks Sunil. So with that, I would request the moderator to start taking questions from the Q&A queue or perhaps if Jay wants to jump in. Over to you.
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