EUR 120.00 For Business Accounts Only

MOSL: TATA CHEMICALS (Buy)-Re-aligning priorities-Consumer products biz to be transferred from TTCH to TGBL

Tata Chemicals: De-merging consumer products business; Consumer biz to be transferred from TTCH to TGBL

(TTCH IN, Mkt Cap USD2b, CMP INR557, TP INR700, 26% Upside, Buy)

 

The board of TATA Chemicals (TTCH) has approved the demerger of its consumer products business and the transfer of the same to TATA Global Beverages (TGBL) in an all-equity transaction. As part of the transaction, TTCH would transfer the salt, spices, protein foods and certain other food & products businesses. However, the salt manufacturing facility, basic chemistry products and specialty products businesses will remain with the company. Existing shareholders of TTCH will receive 1.14 shares of TGBL for every 1 share held in TTCH.

 Deal values consumer at ~18x FY19 EBITDA

Tata Global Beverages

• The consumer business contributed ~45% of standalone revenue and ~16% of consolidated revenue of TTCH FY19. At the EBITDA level, the contribution to the standalone entity stood at ~32% and that to the consolidated business at ~15% of TTCH.
• At a swap ratio of 1:1.14, the consumer business has been valued at ~18x FY19 EBITDA, implying an EV of INR57.6b.
• We believe that the consumer business is a re-rating candidate because of multiple expected synergies, including higher outlet coverage, focused new product development, stronger cash flow generation and scale efficiencies.