Key reasons why the Tata Consumer-Bisleri talks fell apart: Exclusive

Sources also said that both parties could not agree upon a deal structure, and on some milestone-based payment terms. Another source told CNBC-TV18 that there were difficulties in obtaining some data from Bisleri during the due diligence process, which may have soured talks.

Although valuations were high, they were not a deal breaker, according to the source. Tata Consumer was expected to buy Bisleri between Rs 6,000 crore and Rs 7,000 crore.

Chairman Ramesh Chauhan in an interview with CNBC-TV18 had mentioned that they were looking to sell part stake and not whole with his desire to hold on to some stake. He also agreed that there were other players interested in the asset.

India's packaged drinking water industry is valued at Rs 20,000 crore, and 60 percent of it is unorganised, according to a Nirmal Bang report. While distribution and keeping costs low is important, the key to success in this business is proximity to the target market.

Nearly a third of the packaged water is still consumed in low-value, lowest margins - plastic pouches with wafer thin margins, largely dominated by unorganised players. Consumers are aware of packaged drinking water brands, but they tend to buy whatever is available at the store. The stores stock and sell brands that give them the highest margins.

The unorganised players have the advantage of lower overheads and compliance costs, making the shift from unorganized to organized difficult. Furthermore, because of the competition and customers being brand agnostic, it's challenging to implement price increases in the bottled mineral water industry. The price of a one litre of bottled water has been Rs 20 over the last many years.

Bisleri is the market leader with a 32 percent share in the organised market. It has 120 operational plants and an extensive distribution network of over 6,000 distributors & 7,500 distribution trucks. Tata Consumer would’ve benefitted from the access to this manufacturing and distribution infrastructure.

However, Tata Consumer’s own strengths cannot be disregarded. They already have a strong foothold in the premium segment, which is growing at twice the pace compared to non-premium brands like Aquafina or Kinley. Their beverage arm NourishCo is expected to rake in revenue of Rs 600 crore in the current financial year, from Rs 180 crore in financial year 2020. This implies a Compounded Annual Growth Rate (CAGR) of 43.5 percent over three years.

In an interview with CNBC-TV18 post its December quarter earnings, Tata Consumer MD & CEO Sunil D'Souza spoke of a revenue target of Rs 1,000 crore in the next financial year for NourishCo.

Additionally, Tata's differentiated offering, Tata Copper+ has been growing upwards of 100 percent CAGR already, according to the company.

In the premium, natural mineral water segment their brand Himalayan has more salience than Bisleri's Vedica. As per Industry Insiders, in the comparable segment, Himalayan’s market share is triple that of Vedica.

While paying Rs. 6,000-7,000 crore for Bisleri would give Tata Consumer ownership of a Rs 2,500 crore rupees business with a strong brand and strategic distribution assets, assuming great cost synergies through the acquisition wouldn't be prudent given Bisleri is already a well-oiled machine.

Now that the deal has fallen off, the Tata's will perhaps build the distribution organically. Sunil D'souza, in the same conversation with CNBC-TV18 had said they are “Not looking at acquisitions that weren't value accretive and wouldn't buy companies where they could do the business themselves.” The rate at which Tatas’ own beverage business is growing, will make it reach Bisleri’s size in a few years already.

It now remains to be seen that the "other companies" that Ramesh Chauhan mentioned were interested in acquiring Bisleri, would throw their hat back in the ring once again.