Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
10,840.6523.05
Stock Analysis, IPO, Mutual Funds, Bonds & More

Merger of Tata Chemicals & Tata Global Beverages to help Tatas focus on consumer vertical

According to analysts, the salt business of Tata Chemicals has been growing in low single digit for the past several years.

, ET Bureau|
May 16, 2019, 08.10 AM IST
0Comments
BCCL
1
While the valuation for the consumer business appears fair, analysts believe that the residual business of Tata Chemicals is a mere commodity chemicals business.
The merger of Tata Chemicals’ consumer business, which mainly includes the salt segment, with Tata Global Beverages will help the Tata group to focus on the consumer vertical, where its presence as a group has been limited.

However, given long term nature of synergies of the merger, the deal does not offer any immediate trigger for a rerating of the stocks. While there would be 2-3% cost synergies over the next 18 to 24 months according to the management, the combined consumer entity has been struggling to grow across business categories.

For instance, Tata Global Beverages’ revenue for the past five years has declined due to divestment of its less lucrative businesses. Tata Global Beverages mainly includes tea and coffee businesses.

According to analysts, the salt business of Tata Chemicals has been growing in low single digit for the past several years. The company’s packaged spices and pulses business is relatively new and is yet to show major growth momentum. The only positive factor about the salt business is its high margin.

The EBIT (Earnings before interest tax) margin of Tata Chemical’s consumer business was 17% in FY19 compared with 9.1% margin of Tata Global Beverages. The combined entity which will be called Tata Consumer Products will have a combined margin of 10.7%. A higher margin would lead to better cashflows which over a period of time may help the company to look at inorganic growth through acquisition.

On the valuation front, Tata Chemicals’ investors may be disappointed. The swap ratio implies that they will receive 114 shares of Tata Global Beverages for every 100 shares held, thus valuing the consumer business at Rs 227 per share.

On Wednesday, Tata Global Beverages stock closed at Rs 199.5 and Tata Chemicals’ stock closed at Rs 556.8. While the valuation for the consumer business appears fair, analysts believe that the residual business of Tata Chemicals is a mere commodity chemicals business. Hence, it does not justify the remaining value of Rs 330 after taking out the salt segment.

Also Read

Tatas may have to take a call on debt-heavy Tata Communications

Tata Motors' Global Sales Drop 32% in August

Tata Trusts to rank states on justice delivery

AS Lakshminarayanan shortlisted to head Tata Communications

Tata Corporate Bond, Tata Medium Term and Tata Treasury Advantage Fund investors get load free exit period

Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service