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Tata Chemicals share price jumps after de-merger of consumer business; should you buy stock?

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Published: May 16, 2019 11:10:51 AM

Tata Chemicals share price surged in trade on Thursday morning, after the firm announced the de-merger of its consumer business into Tata Global Beverages (TGBL).

Taking stock of the consolidation, global firm Deutsche Bank said that the de-merger unlocks consumer business valuation.

Tata Chemicals share price surged in trade on Thursday morning, after the firm announced the de-merger of its consumer business into Tata Global Beverages (TGBL). Tata Chemicals share price gained by more than 7.5% to hit the day’s high at Rs 601 on BSE. Yesterday, the firm had announced that its board has approved the de-merger of the Consumer Products Business of TCL into TGBL (Tata Global Beverages). The consumer product business of Tata Chemicals consists of manufacturing of edible common salt, spices and protein food. The firm announced that each shareholder of Tata Chemicals will get 1.14 new equity shares of Tata Global Beverages Ltd for every one equity share they held in the company.  The proposed plan will go on to create a focused consumer products company with a combined turnover and EBITDA of Rs 9,099 crore and Rs 1,154 crore respectively.

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Taking stock of the consolidation, global firm Deutsche Bank said that the de-merger unlocks consumer business valuation. The transaction value of Rs 5,800 crore is higher than what Deutsche Bank had expected, it said. Deutche Bank has a target stock price of Rs 715 on the shares, with a ‘buy’ rating. The stock will trade at 15 times FY20 estimated P/E, an 9 times FY20 EV/EBITDA.

Sharing the implications for the shareholders of Tata Global shareholders, Deutsche Bank said that the merger of the consumer business products is a long-term positive for the firm. The merger will benefit from the strong brand value of Tata Salt. Taking stock of the synergies, the research firm said that the strong distribution capabilities can be leveraged by the combined business. However, the firm does not expect any major margin accretion. Deutsche Bank has a ‘hold’ rating on TGBL with a target stock price of Rs 240. TGBL share rose more than 4.7% to hit the day’s high at Rs 208.10 on BSE. Deutsche Bank noted that the merger would lead to pre-tax synergies of 2-3% for the firm.

(Please consult your financial advisor before making any investment-related decision)

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