In Focus: High on Water | Value Research Energy Brands buy marks Tata Tea’s entry into high-growth enhanced water biz
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In Focus: High on Water

Energy Brands buy marks Tata Tea’s entry into high-growth enhanced water biz

It is not surprising to find Tata Tea down another drink. The acquisition of US-based Energy Brands by Tata Tea has become the largest international acquisition by any Indian company.

The company is no novice in the area of foreign buys. It bought the much-larger UK-based Tetley in 2000. With Tetley being integrated with itself, Tata Tea bought smaller tea players like Good Earth in the US and Jemca in Czech Republic. And this acquisitive streak was also seen in its subsidiary Tata Coffee, which bought US-based Eight O'Clock Coffee in June.

With the Energy Brands acquisition, Tata Tea has forayed into the non-tea non-coffee beverage business. Energy Brands sells the Glaceau range of enhanced waters. Glaceau brand, which is growing at a CAGR of 200 per cent, has three products under its fold. Its product line includes smart water, vitamin water and fruit water.

This is a high growth market. The black tea market is only declining in the developing markets though speciality teas, where Good Earth has a presence, are in a growth stage. Otherwise, gaining market share in the tea market is possible mainly through the inorganic route.

Energy Brands had a turnover of $355 million last year, which is expected to increase to $700 million. According to the deal, Ratan Tata will take over as chairman of Energy Brands, in which the Tatas have picked up a 30 per cent stake. Additionally, the Tatas will also have the option to buy another 10 per cent stake in the company.

For this business, Tata Tea will pay a hefty price of 6.4 times trailing revenues and 3.2 times forward revenues. Funding $677 million may not be tough for Tata Tea and Tata Sons, though the interest burden will affect Tata Tea's profitability in the near term. But, the stock market is likely to see a re-look at the price -earning multiple to factor in this high growth business.

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