Tata Consumer decides to restructure the coffee business. Not exciting for me.

Target Date - March 31, 2023

Tata Consumer Products (TCPL) has decided to restructure the business of it’s 57.48% subsidiary Tata Coffee Limited (TCL).

The proposed restructuring includes the following –

  • Demerger of TCL’s plantation business into a new 100% subsidiary of TCPL.
  • Merger of the remaining TCL’s business into TCPL.

TCPL’s shareholding in TCL would be cancelled and non-promoter TCL’s shareholders will be given 3 shares of TCPL against every 10 shares of TCL.

Rationale for the merger

Consolidation of all the consumer brands under TCPL with the benefits of greater focus, economies etc etc etc.

Plantation business to be kept separate due to the different operating dynamics.

Impact of the merger from investor’s perspective

To me the above reorganisation is non material – given that TCL was already a significant subsidiary of TCPL. Merger/ demerger of such businesses don’t excite me personally.

However, on the face of it, given the current valuations of TCPL and TCL, TCL shareholders are bound to get excited.

  • TCPL and TCL’s closing prices on March 29 were Rs 743.2 and Rs 196.25 respectively
  • As per the swap ratio, TCL share should be worth Rs 222.96 i.e., 13.6% higher than Rs 196.25 (222.96 = 743.2*3/10)

However, this is assuming that TCPL currently at >80 trailing P/E is fairly valued !

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