Tata Stock To Buy: Tata Consumer-Tata Coffee Deal Nearing Reality? Motilal Oswal Sets Over Rs 1,100 TP

Tata's consumer business scheme of arrangement involving Tata Consumer Products, Tata Coffee and TCPL Beverages & Foods is taking one step closer to reality. In the latest development, Tata Consumer said that the record date for the allotment of shares to shareholders in the amalgamation will be announced soon. Motilal Oswal is the latest to recommend buying Tata Consumer and has set the target price to more than Rs 1,100 levels. Tata Consumer is currently near its 52-week high of Rs 963 apiece.

Tata Consumer Share Price:

On BSE, Tata Consumer share price ended at Rs 954.70 apiece, up by 0.4% by the end of Friday's trade last week. The company's market cap is nearly Rs 88,693 crore.

The stock is near its 52-week high of Rs 963 apiece.

YTD, Tata Consumer shares have zoomed by more than 25% on the exchange.

Tata Consumer- Tata Coffee-TCPL Deal:

As per the regulatory filing, the first step of the demerger is of Tata Coffee into TCPL -- for which -- 1 fully paid-up equity share having a face value of Re 1 each of TCPL shall be issued and allotted for every 22 fully paid-up equity shares having a face value of Re 1 each in Tata Coffee.

The second step would be the amalgamation of Taat Coffee (comprising the remaining business) with TCPL -- for this -- 14 fully paid-up equity shares of TCPL will be issued and allotted for every 55 fully paid-up equity shares held in Tata Coffee.

Accordingly, the deal is in two tranches namely 1:22 and 14:55 shares entitlement ratio. Upon the completion of the scheme, Tata Coffee would stand dissolved, without being wound up.

Tata Consumer also said the record date for determining the entitlement of shareholders of Tata Coffee to receive equity shares of TCPL, shall be fixed by the company.

That being said, Tata Consumer has urged the shareholders of TCL to dematerialize their holdings at the earliest to receive direct allotment of the aforesaid shares in their demat accounts. Alternatively, an option form is provided for shareholders to intimate their other valid demat account to receive shares in electronic mode.

Tata Consumer Products was formerly known as Tata Global Beverages Limited (TGBL).

Should You Buy Tata Consumer Share Price?

In its latest research note dated December 15, Motilal Oswal has analysed tea prices and production trends, and their impact on TATACONS. It said tea has been a core product and an integral part of Tata Consumer Products Ltd's (TATACONS) portfolio, with its India tea business accounting for ~32% of the company's total consolidated revenue in FY23.

Going ahead, Motilal's note said, that the company is confident of making up for the lost share through the expansion of its distribution network and powering up brands. However, the brokerage expect ~5% volume growth in 2HFY24.

However, Motilal's note also pointed out that standalone gross margins have contracted since 3QFY23 due to an increasing mix of Sampann (relatively lower gross margins than the tea business). Going ahead, it said, "with tea prices expected to remain flat due to muted production
growth, we expect the gross margin to remain stable or improve slightly."

On its valuation, Motilal's note said, "TATACONS is following a two-pronged growth approach: 1) focusing on new growth engines such as Tata Sampann, NourishCo, Tata Soulfull and the ready to-eat/ready-to-consume business (Tata Smartfoodz); and 2) rapidly scaling up its distribution network along with digitization prowess across the supply chain, which will drive the next leg of growth."

Lastly, it added, "We expect a revenue/EBITDA/PAT CAGR of 10%/15%/22% over FY23-26 and arrive at our SoTP-based TP of INR1,110. We reiterate our BUY rating."

From the current price level that would be a potential upside of more than 16% in Tata Consumer ahead.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.