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To focus on synergies, hiving off consumer business; maintain Buy
* Tata Chemical’s (TTCH) board has approved the demerger of its consumer business into Tata Global Beverages (TGBL). Under the Scheme of Arrangement, each TTCH shareholder will get 114 shares of TGBL for every 100 shares held
* The consumer business contributes Rs18.4bn to TTCH’s FY19 revenue and Rs3.1bn to EBITDA. After the demerger, TGBL will be renamed Tata Consumer Product Ltd (TCPL), which will have brands such as Tata Salt, Tata Tea, Tata Sampann (pulses), and Tetley.
* Salt manufacturing will continue to remain with TTCH, which has ~Rs8.80bn/Rs2.61bn of manufacturing revenue/EBIT. Going forward, TTCH will focus on achieving 50:50 revenue mix between basic chemicals and specialty chemicals vs. 80:20 mix in FY19.
* The long-term supply and price increase pass-on arrangement with TGBL on bulk salt manufacturing looks positive. In our view, this may also attract a slight premium in basic chemical business. Excluding the consumer business, TTCH’s new SoTP will be Rs472.
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