TCPL is in the process to create a simplified corporate structure which may allow it to unlock/sell some of its low-growth/ low-profit subsidiaries. That is the key insight we have gained from TCPL’s restructuring plan. We also believe recurring earnings accretion of 5-10% is a high probability post the restructuring as (i) minority interest of Rs 957 mn (9.3% of pre-minority interest) will be almost nil, (ii) there will be a reduction in admin and legal expenses, (iii) likely some savings from release of excess management bandwidth and (iv) there will be some tax savings and better utilisation of tax credits.
Even after considering dilution (31.3 mn additional shares i.e. 3.4% dilution), EPS may inch up by 5-10%. We also expect some revenue synergies especially in extraction business. We expect TCPL to announce further restructuring plans in FY23 considering it has 45 global subsidiaries and some associates/joint ventures. We remain constructive. Maintain Buy with an unchanged SoTP-based TP of Rs 925.
Structure to unlock value: Post acquiring 100% stake in the international tea business and Tata Coffee, TCPL has created a simplified structure to potentially sell commodity/low-growth/low-profit businesses, in our view. We also believe the management structure will be simplified post restructuring and it will be easier to rollout any further synergies.
Reiterate BUY: We model TCPL to report revenue and PAT CAGR of 11.5% and 19.7%, respectively over FY22-24E. Key risk is execution – delays in realising integration gains, ramp-up of distribution, etc.