Tata Tea Limited

Submitted by:
Murad Mir
Sec D





Submitted to:
Prof. F.A Fareedy

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Introduction
Tata Tea Limited was incorporated as Tata Finla in 1960 to undertake production, processing and
marketing of tea. With the acquisition of Finlays shareholding of tata group its name was changed to
Tata Tea Limited. Over the period of time, Tata Tea grew and reached to the level of Rs. 900 crore
turnovers by 1998-99. In April 1999, Tata Tea received an offer to takeover Tetley Limited, the UK based
Tea bag company with turnover twice than Tata Tea.
Qualitative & Quantitative data
About 20-25% of the tea produced in India is exported and the remaining is consumed in the
country.
Other major tea producing countries are China, Sri lanka, Bangladesh, Kenya, Uganda and
Tanzania.
Tetley tea has a total turn-over of around 320 million pounds and net profit of 26 million pounds.
Tata tea will become a major global player in the packet tea market with a combined turnover of
more than Rs 3100 carore at the present level of activity.
Analysis of Tables
Unstable Tea Production: Tea production is dependent on weather. Table 1 shows that average
per hector production varies along different areas of India. It ranges between 2031-3180
kg/hector.
Strong Financial Position: Table 2 shows companys net profits have increased from 58.62 to
128.76 crore (219%) in just two years. Companys Debt to equity ratio has also improved from
1998 to 1999. Book value of Tatas stock is also improving Rs92.23 at the moment.
Shift from Commodity to FMCG: Table 3 shows that packed tea sales are increasing over the
years (393-588 lakh kgs from 1994-99) and on the other time Bulk tea sales are decreasing (230-
115 lakh kg from 1994-99)
Core Issue
Is it feasible for TATAS long Term prospects to acquire Tetley?
Tata Tea intends to expand its Horizons and intend to tap the Global market. The idea of acquiring Tetley
is not alien to them.
Alternatives
Acquire Tetley
Can gain through synergy by acquiring Tetley
Expands own product portfolio as Prospectors
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Enhanced export opportunities by offering a plethora of Tea products to different
countries.
Increase in export by Branding their Tea as it is high value added Tea
Tata can become a Global Brand
Does not acquire Tetley
Stays put where it is and acts in the capacity of Defender
Maintains its existing product lines
Solution
Tata Tea should acquire Tetley Tea: This will enable Tata to become a global Brand and
increase it reaches globally.
Positives
Major global player
Distribution channel and import advantages
New products
Tetleys procurement process is of insurmountable importance to Tata
Negatives
Market leader, HL, might retaliate being the Defender.
Hl management superior to Tatas
Managerial gap and cultural diversity could rock the boat
Tata should alter its strategy by looking at the short run and the long run and determine the future
trajectory of the company. Tata cannot compete with Unilever in India currently- their short term
strategy should be to focus and promote the product abroad, especially in EUROPE and US. Tata can
cash on Tetleys popularity and focus on the high quality tea as a USP. In the long run TATA can focus
their attention in India by differentiating the product as HIGH quality tea and then compete directly
against Lipton and Brooke Bond. Enhance and build Brand equity to properly compete against Hindustan
Lever. With improved distribution network, high market coverage and demand in UK, US and EUROPE
and high quality tea. Merger translates into economies of scale, Flank Attack Strategy & Increase in
market share globally and locally.