Tata Consumer - Creating Value Through Inorganic Route: Systematix

Systematix Report

Tata Consumer Products Ltd. has made two substantial acquisitions which should bolster its high-growth portfolio and push up its revenue and margin growth trajectories substantially, helping it sustain the sharp re-rating seen recently.

The company is acquiring 75% (remaining 25% in three years) in Capital Foods (Ching’s Secret and Smith & Jones) at an enterprise value of Rs 51 billion implying a valuation of 6.8 times FY24E sales and ~34 times enterprise value/Ebitda. It is also acquiring 100% in Organic India at EV of Rs 19 billion implying a valuation of 5.2 times FY24E sales and ~68 times EV/Ebitda.

Both businesses are expected to deliver strong double-digit (20% plus) growth rates and are significantly gross margin accretive in addition to significant synergy benefits available as well.

The management expects earning per share breakeven in FY26 assuming a combination of existing cash, debt and equity issuance to fund this transaction, which should close in Q4 FY24.

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