KR Choksey's research report on Tata Consumer Products
TATACONS announced 2 separate acquisitions: (1) 100.0% equity shares of Capital Foods, owner of the brands ‘Ching’s Secret’ and ‘Smith & Jones’, in a phased manner, with 75.0% to be acquired upfront and the balance 25.0% to be acquired within the next three years. Enterprise value on ‘no cash/no debt basis’ for 100.0% stake is INR 51 Bn, valuing Capital Foods at 6.8x FY24E Net Sales. (2) 100% of the equity share capital of Organic India from Fabindia Ltd. at an enterprise value on a ‘no cash/no debt basis’ of INR 19 Bn, along with an additional earn out for the shareholders linked to FY26E audited financials of the Target Company. The transaction values Organic India at 5.2x FY24E Net Sales. Both acquisitions are expected to be completed by Q4FY24E, with operational integration to be completed in 3-4 months after closing. These 2 acquisitions will lead to significant double-digit revenue growth and margin accretion in the near term for TATACONS. EPS breakeven is expected to be achieved in the 2 nd year of operations (based on an assumed mix of debt and equity funding by TATACONS). TATACONS plans to finance the acquisitions through a combination of cash reserves on the balance sheet, debt in the form of commercial papers/ debentures, and equity issuance through Rights Issue or any other mode (subject to Board approval on 19th January 2024).
Outlook
We have valued TATACONS on a SOTP basis. For India Business, we apply an EV/EBITDA multiple of 43.5x (earlier 38x) to FY26E EBITDA; for International Business, we apply an EV/EBITDA multiple of 15.2x (unchanged) to FY26E EBITDA; and for Starbucks business, we apply an EV/Revenue multiple of 2.9x (earlier 3.2x) to FY26E Revenue. Accordingly, we revise our target price to INR 1,322 per share (INR 1,066 earlier), an upside of 16.1% over the CMP. Accordingly, we reiterate a “BUY” rating on the shares of Tata Consumer Products Ltd.
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