Tata Chemicals does the full circle with salt, water and now food

After establishing its presence in the salt business through Tata Salt and in the water business through its Swach water purifiers, Tata Chemicals is planning a big splash in the foods segment.

The chemicals and fertiliser arm of the Tata Group, which has been tightlipped on the move, is expected to make an announcement today.

The organic move into foods follows a major acquisition announced by Tata Chemicals on Monday.

The company has acquired a 100% controlling stake in the UK-based British Salt at an enterprise value of Rs650 crore.

In a way, Monday’s deal completes the journey Tata Chemicals began in the UK in 2005, when it acquired one of Britain’s largest soda ash manufacturers —- Brunner Mond —- for close to `4,000 crore. Now, with salt in its European portfolio, Brunner Mond can look forward to raw material security.

“This acquisition is a kind of backward integration for us as it will help us in securing cost-effective brine supply,” R Mukundan, managing director, Tata Chemicals said at a press conference held to announce the deal.

British Salt is one of the leading edible salt manufacturers in the UK with a market share of around 50%. It has its own brine (salt) wells in the island nation with residual life of 50 years.

PK Ghose, chief financial officer, Tata Chemicals said the acquisition also gives Tata Salt an entry into the UK market.

Further, British Salt is active in gas storage business.

“In UK, salt is not made from sea water. Instead, it is mined from underground deposits. These deposits fall empty after salt is mined and can be used to store gas,” Mukundan said, adding, the company can make an additional 45-50 million pounds through leasing out these storage spaces to energy companies.

However, there is a flip side to the acquisition, too. It is entirely debt-financed and is done by Brunner Mond, which already has high debt on its books.

“At £93 million, this increases the debt burden on Brunner Mond by roughly 65%,” said an analyst with a leading domestic brokerage.

She said though it gives Tata access to a high revenue stream business of edible salt and captive consumption for Brunner Mond, it might get difficult for them as Tata Chemicals has still not been able to turn around Brunner Mond, which clocked losses of £25 million. “So the acquisition comes at a price.”

Purnendu Kumar, associate vice-president, Technopak Advisors said, “If it is packaged foods, then the company is actually getting into a highly competitive arena, which is small, but growing at a rate of over 15% annually.”