The global investment bank likes the merger for the strong brand value of Tata Salt. Strong distribution capabilities can be leveraged by the combined business
Shares of Tata Chemicals rose more than 3 percent after the company said that it will transfer its consumer products business to Tata Global Beverages (TGBL), according to a May 15 release filed with the exchanges.
The release also noted that TGBL will be renamed as Tata Consumer Products Limited. The company expects the combined entity to reach over 200 million households.
"The proposed transaction will create a focused consumer products company with a combined turnover and EBITDA of Rs 9,099 crore and Rs 1,154 crore, respectively, for the twelve months period ended March 31, 2019, on a proforma basis," said the release.
According to the scheme, each shareholder of TCL will get 1.14 new equity shares of TGBL for every 1 equity share held in TCL, meaning that a shareholder holding 100 shares in TCL will receive 114 shares in TGBL.
Reacting to the development, Deutsche Bank maintained its buy rating on Tata Chemicals but raised its target price to Rs 715 from Rs 695 earlier.
The de-merger unlocks consumer business valuation. The stock has the potential to deliver about 30 percent. “The transaction EV of Rs 5,800 crore is 10 percent higher than what we had built into the target,” said the note. The stock will trade at 15x FY20e P/E & 9x FY20e EV/EBITDA.
Deutsche Bank maintained its hold rating on Tata Global Beverages with a target of Rs 240/share. The merger of the consumer products business of Tata Chemicals into the company is a positive development in the long term.
The global investment bank likes the merger for the strong brand value of Tata Salt. Strong distribution capabilities can be leveraged by the combined business.
Deutsche Bank does not see much margin accretion, but the merger would lead to pre-tax synergies of about 2-3 percent.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Get Lok Sabha 2019 Live Election Results, constituency-wise tally, news, views and analysis
Follow our Lok Sabha Election Result Live Blog here.