MOSL: TATA CHEMICALS (Buy)-Residual biz (post-consumer demerger) available at attractive valuation
Tata Chemicals: Residual biz (post consumer demerger) available at attractive valuation
(TTCH IN, Mkt Cap USD2.3b, CMP INR631, TP INR758, 20% Upside, Buy)
Value unlocking through demerger of Consumer business
- In May’19, the board of Tata Chemicals (TTCH) had approved the demerger of its Consumer products business and the transfer it to Tata Global Beverages (TGBL) in an all-equity transaction. It was also announced that TTCH would retain salt manufacturing with itself post the deal.
- The existing shareholders of TTCH will receive 1.14 shares of TGBL for every 1 share held in TTCH.
- At the time of the announcement, the deal valued the Consumer business at ~18x FY19 EBITDA, implying an EV of INR57.6b (INR226/share). However, since then, the share price of TGBL has rallied by ~50% and of TTCH by 14%. As a result, the value/share of the consumer business being transferred to TGBL stands at INR342/share. Against this backdrop, we attempt to analyze the valuation at which the residual business is available.
Tata Chemicals is engaged in the production and selling of interests that focus on LIFE - living, industrial and farming essentials. Co.'s products are used in a wide range of pharmaceutical, food processing and industrial applications. Living essentials - Tata Salt, I-Shakti, Tata Salt Lite; Tata Salt Flavoritz, Tata Salt Plus, i-Shakti Dals and Tata Swach. Industry essentials - soda ash; sodium bicarbonate; chemicals: caustic soda, chlorine based products, bromine based products, gypsum, sodium tripolyphosphate, phosphoric and sulphuric acids; industrial salt; and cement: Tata Shudh. Farm essentials - fertilizers: Tata Paras urea, DAP, NPK, and SSP.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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