Home / Markets / Mark To Market /  Why Tata Consumer’s shares are top gainers on Nifty50 today

Tata Consumer Products Ltd (TCPL) shares were trading more than 4% higher on the NSE in Wednesday’s morning trade, making it the top gainer in the Nifty50 index. Investors have cheered the company’s announcement of reorganization of its India and overseas business. The simplified corporate structure is expected to unlock value.

The non-plantation business of Tata Coffee Ltd (TCL) will be merged with TCPL which currently owns 57.48% in TCL. Further, the plantation business will be merged with TCPL’s wholly-owned subsidiary, TCPL Beverages and Food Ltd. Overall, TCL’s shareholders will receive three equity shares of TCPL for ten equity shares held by TCPL in TCL. This means that TCL is valued at 14% premium to its Tuesday’s closing price. Needless to say, TCL’s shareholders are clear winners from this reorganization. Inevitably, shares of TCL are up by 12% on Wednesday.

“Given the large land-holding in the plantation business, we believe the transfer could involve significant costs in terms of stamp duty, etc to be paid but management believes the benefits to be derived in the future from the simpler structure would more than offset the costs involved," said analysts at JM Financial Institutional Securities Ltd in a report.

Further, TCPL will issue 7.46 million equity shares to Tata Enterprise (Overseas) AG, Switzerland through preferential issue for purchase of 10.15% minority interest in its UK subsidiary, Tata Consumer Products UK Ltd. This would mean TCPL completely owning the UK business.

“This entity largely houses the international tea business of TCPL and the transaction values the portfolio at Rs5620 crore including the Rs1850 crore of net liquid surplus on its books (as of Mar’21). Enterprise value of the business accordingly works out to Rs3780 crore versus the valuation of Rs3850 crore included by us in our SOTP (sum-of-the-parts valuation) (based on 13x forward EV-EBITDA)" added the JM Financial report. EV is enterprise value. Ebitda is earnings before interest, tax, depreciation and amortization.

The company expects such reorganization to create synergies and operational efficiencies which would ultimately result in better earnings. “We expect a sales/Ebitda/PAT (profit after tax) CAGR of 9%/17%/23% over FY21-24E, respectively. Factoring the increase in outstanding share by 3.4% in FY24 due to restructuring and minority income adjustment; we increase our earnings per share estimate by ~3%," said analysts at Motilal Oswal Financial Services in a report. CAGR is compounded annual growth rate.

ABOUT THE AUTHOR

Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
Know your inner investor Do you have the nerves of steel or do you get insomniac over your investments? Let’s define your investment approach.
Take the test
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout