How Bisleri fits into the Tata Consumer Products game plan?

The Tata group has been consolidating and restructuring its group properties along logical lines. Tata Consumer Products (formerly Tata Global Beverages) has been at the forefront of this consolidation. In 2020, Tata Consumer Products absorbed the salt business of Tata Chemicals. In early 2022, it merged Tata Coffee with itself. Now, the latest plan is to acquire the mineral water business of Bisleri. Incidentally, Bisleri is a product manufactured by Ramesh Chauhan who was one of the pioneers of carbonated soft drinks in India with brands like Thumbs Up and Limca. The deal to buy Bisleri International is expected to be worth Rs. 7,000 crore approximately or nearly $855 million.

As of now, the deal has only been confirmed by informal sources. The question that arises is how does the Bisleri franchise fit into the Tata Consumer Products plan, especially when Tatas have their own brand, Himalaya. Remember, Himalaya is more of an exclusive product that is priced higher and sold exclusively largely through the institutional network setup. However, Bisleri is more of a mass market product which also makes economical small sizes to reduce the size. Bisleri is quite popular in the urban, semi urban and rural areas and that is likely to geometrically expand the reach and distribution power of Tatas in mineral water.

The Tatas have been playing their cards close to the chest and want the deal to go through first. However, in an interview, Ramesh Chauhan of Bisleri and confirmed that they were in talks with the Tata group on buying Bisleri International. He had also hinted in the interview that the deal may take about 7-8 months to be fully consummated. Bisleri currently has about 130 operational bottling plants and a network of over 4,500 distributors. Tatas get access to this valuable asset at this juncture and that would provide a big boost to Tata Consumer Products Ltd.

Before we get into the financials, here is a small anecdote about the background of the Bisleri International Company. The company was originally an Italian company founded by Italian entrepreneur, Felice Bisleri. That company had entered India in 1965 to sell bottled water, but obviously the idea was way ahead of its time. When Felice Bisleri piled up losses, he wanted to sell the India business, which was bought by the Chauhan brothers for a princely sum of Rs. 4 lakhs. Now that investment has grown to Rs. 7,000 crore. That is a compounded annual growth rate (CAGR of over 23% annualized over the last 55 years.

Incidentally, If the Tata Bisleri deal goes through, it would be the biggest deal in the FMCG space in India. Among earlier large deals, HUL had bought Horlicks for Rs. 3,045 crore while ITC had acquired Sunrise Foods for Rs. 2,150 crore; both were in the year 2020. Perhaps, the largest deal in the FMCG space was the purchase of Heinz India’s consumer wellness division by Zydus Wellness for a consideration of Rs. 4,595 core. The Tata Bisleri deal is likely to be larger than all these previous deals in the FMCG space. This deal will help Tata Consumer Products to gain a foothold in the beverage segment and it would be able to use the solid Bisleri brand name to expand its drinks portfolio.

The deal also makes financial sense to the Tatas. For instance, between FY16 and FY20, the sales of Bisleri doubled from Rs. 738 crore to Rs. 1,473 crore. During this same period, its EBITDA also doubled to Rs. 240 crore while the net profits grew 3-fold to Rs. 102 crore. Its total debt at Rs. 81 crore is less than one-third of the EBITDA of the company so the solvency of the company is also extremely comfortable. In fact, the acquisition would help TCPL to improve most of its profitability and solvency ratios. Tata Consumer has not been able to play the retail FMCG game as effectively as other players like Hindustan Unilever, Marico and Dabur and this acquisition should give them the Bisleri edge for retail distribution.

One thing that is attractive about the packaged water business is the high margins of 30% to 35%. However, the segment does face risks of increased competition. The acquisition will add around Rs. 1,500 crore in sales to the top line Tata Consumer Products. So, if TCPL pays Rs. 7,000 crore for the acquisition, it would be able to recover its investment in just 4 to 5 years in terms of top line. For FY23, Bisleri is expected to report sales revenues of Rs. 2,500 crore and net profits of Rs. 200 crore resulting in net profit margins of around 8%. That is a good position to foray into the new business for the Tatas.