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INR 5100 Crore Tata Ching’s Deal: Read Between The Tea Leaves

By AltG Research On Behalf Of Poornima Vardhan & Taponeel Mukherjee

Photo of TATA Ching's Deal

AltG Strikes again! We had opined in September, 2023 that the rumoured acquisition price of INR 5,500 Crores was significantly higher than where we saw value creation potential. See details: 

  1. The deal has been structured in a way to help Tata Consumer unlock value while reducing risk as we had suggested. The line in the sand number was INR 3500 Crores for a 15% hurdle rate return with the 21st September 2023 stock price of Tata Consumer at 871. 

  2. We had correctly pegged that for a 15% hurdle rate a valuation of INR 3500 Crore is what Tata’s should pay when the share price of the acquirer was at 871. The deal announced is that while the acquisition value is INR 5100 Crores, 75% or INR 3825 Crores is to be paid upfront while “balance 25% to be acquired within 3 years”. The remaining portion effectively will be paid out as “earn-outs'' using the cashflows from the acquisition. This essentially helps “cheapen up the deal”.

  3. This is right in line with our estimate adjusted for the fact that Tata Consumer’s share price is 32.5% higher now at 1154. 

  4. TATA Consumer can take advantage of its 3.8 million distribution network (vs. .35 million distribution network for Capital Foods) to substantially generate higher revenue and thus returns from this deal. 

With TATA consumer clearly going the FMCG way, this deal including Organic India helps expand the portfolio across different categories of Pantry, Mini-Meal Platform along with booting the core business by adding Herbal Teas. This deal in terms of operations and strategy has significant value creation potential. 

Disclaimer: In the article "INR 5100 Crore Tata Ching’s Deal: Read Between The Tea Leaves" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.


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