Shares of Tata Coffee Ltd (TCL) rallied 12.9 per cent on Wednesday, as analysts said the restructuring proposal of Tata Consumer Products Ltd (TCPL) is beneficial to the shareholders of the former.

TCL shares, which jumped 12.91 per cent to ₹221.60 (intra-day) on the BSE, closed at ₹214.55, up 9.32 per cent over the previous day's close. The stock of Tata Consumer Products, after hitting a high of ₹782.50, closed at ₹765.95, up 3.05 per cent, over the previous day's close.

Reorganisation plan

TCPL on Tuesday announced a reorganisation plan in line with its 'strategic priority of unlocking synergies and efficiencies'.

According to the proposal, the plantation business of TCL will be demerged into TCPL Beverages & Foods Ltd (TBFL), a wholly-owned subsidiary, and the merger of the remaining business, consisting of its extraction and branded coffee business. The demerger will be the first step and merger the immediate second. Both the steps are being proposed through a composite scheme of arrangement.

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The shareholders of TCL (other than TCPL) as on the record date will receive an aggregate of three equity shares of TCPL for every 10 equity shares held by them in TCL

Tata Consumer Products announces reorganisation plan

Under the scheme, shareholders of TCL (other than TCPL) will receive an aggregate of three equity shares of TCPL for every 10 equity shares. This will be done by issuing one equity share of TCPL for every 22 equity shares of TCL in consideration for the demerger. For the merger, 14 shares of TCPL will be issued for every 55 shares of TCL, it added.

TCPL: Long-term benefits

According to analysts, while TCL shareholders will benefit immediately due to the swap ratio, it will take a little while for TCPL shareholders to unlock values.

According to Yes Securities, TCL shareholders stand to benefit more with the swap ratio implying a 14 per cent premium to CMP. "The UK business was also valued at ₹5,600 crore, almost 2x of our target SOTP value. We expect this transaction to be only marginally EPS dilutive in FY24E for TCPL shareholders without building in any synergy benefits which should materialise starting FY25," it added.

Another domestic brokerage JM Financial said, "These transactions do not materially change the overall valuation construct for TCPL, in our view. TCPL’s EPS could go up by 4-5 per cent at best, but the quality of incremental earnings is weaker (from non-branded and international tea which represent two of the least favoured businesses in TCPL’s portfolio)".

The street may still choose to view this a bit more favourably, though; it could also be because a simpler organisation structure would make it easier for some of the businesses to be ‘monetised’ in the future, if need arises, it said. "For now, Tata Coffee holders are the clear winners from this exercise," it added.

Motilal Oswal Financial said, "Factoring in the increase in outstanding share by 3.4 per cent in FY24E due to restructuring and minority income adjustment, we increase our EPS estimate of TCPL by about 3 per cent for FY24."

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