Tata Coffee, TCPL surge 4%; hit new highs on fixing record date for merger

Tata Coffee, Tata Consumer and its wholly-owned subsidiary TCPL Beverages and Foods merger to be effective from January 01, 2024; Record date for share swap set as January 05.

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Shares of Tata Coffee (TCL) and Tata Consumer Products (TCPL) rallied up to 4 per cent, hitting their respective record highs on the BSE in Thursday's intra-day trade after fixing January 15, 2024 as record date for merger.

TCL surged 4 per cent to Rs 321.15, while TCPL gained 3 per cent to Rs 1,078. In comparison, the S&P BSE Sensex was down 0.15 per cent at 72,301 at 09:54 AM. Thus far in the month of December, both the Tata Group companies have soared 15 per cent, as against a near 8 per cent rise in the benchmark index. Meanwhile, TCPL market capitalisation hit Rs 1 trillion mark for the first-time ever, shows the BSE data.

In separate exchange filings these companies said that the scheme of arrangement between TCL, TCPL and its wholly-owned subsidiary TCPL Beverages and Foods Ltd (TBFL) will be effective from January 1, 2024.

TCPL proposed a merger with TCL in March 2022 with the objective of unlocking synergies and creating a simpler organisational structure. While the plantation business of TCL will be demerged into a wholly-owned subsidiary of TCPL, the coffee extraction business of TCL will be absorbed into TCPL. The coffee extraction and tea extraction businesses will be combined on a common platform.

Following this announcement, TCPL stated that it would issue one equity share for every 22 equity shares held in TCL for the demerger of TCL's plantation business into TCPL. For the merger of the remaining business, the company will issue 14 equity shares of TCPL for every 55 equity shares held in TCL.

Upon completion of the demerger and the amalgamation, TCL will stand dissolved and effectively, shareholders of TCL will receive three new equity shares of TCPL for every 10 equity shares of TCL.

Meanwhile, ICRA expects TCPL's performance to remain steady over the coming years on the back of steady demand for its core product portfolio (tea, coffee and salt) and increasing contribution from its growth portfolio (staples, ready-to-drink liquids, breakfast cereals, snacks, ready-to-eat products, among others) translating into healthy cash flow from operations.

In addition to the merger of Tata Coffee Limited (which would become effective from Q4 FY2024), the company has also announced its plans for the merger of its three domestic subsidiaries - Tata Soulful, Tata Smartfoodz and NourishCo Beverages – with TCPL, subject to necessary approvals. This is expected to further simplify its group structure, the rating agency said.

The ratings continue to favourably factor in the dominant position of TCPL in the domestic and global branded tea market along with improving diversification of the domestic branded business across products and categories on the back of new product launches and strategic acquisitions, ICRA said in rating rationale.

The Stable outlook reflects ICRA's expectations that TCPL would continue to benefit from its dominant brand presence in the beverages and food segments coupled with its key focus on increasing market penetration and innovations (both in domestic and global markets). ICRA further expects that TCPL will continue to maintain a conservative capital structure and strong debt coverage indicators, aided by healthy cash flow from operations.