Salt takeover by Tata global beverages from Tata Chemicals Ltd.

The change of ownership of the Salt Department from Tata Chemicals to Tata Global Beverages appears to sound alarm bells for investors. While the change in ownership is only an in-house familial restructure deal, investors in Tata Chemicals may be rightly concerned as Tata Global Beverages add 25% to its revenue and 50% to its net profit for a 46% dilution in equity. It is not of specific concern to Tata Global Beverages as it is to Tata Chemicals Limited as the latter stands to sell off a valuable unit of rising profit spinning nomenclature.

Tata Chemicals’ salt business appeared to have saturated and expectedly the profit margins did appear to plateau although recent records show good growth records. Against this backdrop, the change of hands in the salt regime did raise hackles with stake holders averse to agree to the change. But the overall set up favored a change giving salt the global prospect. There is greater scope for business growth for salt in the hands of Tata Global Beverages.

Nonetheless, from a strategic viewpoint it is a win-win situation for both entities as the manufacturing unit of salt continues with Tata Chemicals Ltd. As is the case in any changes, Tata Chemicals investors would do well to wait for a look at reported profits post completion of merger to check if the removal of salt from its marketing unit has made any dent in its profit making scenario. The same goes for shareholders of Tata Global Beverages. If there is joy in Tata Global’s acquisition of salt it may be short lived as its acquisition of salt and pulses may cut into the profitability of other fast-moving consumer goods (FMCG) stocks as salt and pulses lack the power and profitability of the regular FMGC stocks.