What A Bisleri Buyout Would Mean For Tata Consumer

Motilal Oswal expects the Tata brand name to help expansion into non-carbonated and ready-to-drink beverages.

<div class="paragraphs"><p>Range of Tata Consumer Products. (Source: Company website)</p></div>
Range of Tata Consumer Products. (Source: Company website)

Tata Consumer Products Ltd.'s plan to buy Bisleri, India's best-selling bottled water brand, will aid the company's sales and profits as it will be able to take advantage of synergies with NourishCo Beverages Ltd., according to Motilal Oswal Investment Services.

Bisleri International Pvt. Chairman Ramesh Chauhan had confirmed that he is in talks with Tata Consumer to sell the brand. Media reports pegged the deal value at an estimated Rs 6,000–7,000 crore. If the deal goes through, that will strengthen its non-carbonated and ready-to-drink beverage portfolio.

Tata Consumer has already bought out the last piece of the NourishCo joint venture from PepsiCo, which is paying off. It is rapidly expanding its distribution coverage, leveraging the strength of its existing portfolio, and launching new products.

NourishCo has registered a compounded annual revenue growth rate of 32% between FY12 and FY20, when Tata Consumer acquired 50% stake held by PepsiCo. Since then, the revenue is growing at an annualised pace of 38% despite the impact of Covid-19.

NourishCo covers brands including Himalayan, Tata Gluco Plus, Tata Copper Plus Water, and Tata Fruski. After the acquisition, NourishCo turned EBIT positive, with margin rising from 3% in FY21 to 6% in FY22.

The non-alcoholic beverages market is expected to grow at a CAGR of 8.7% from 2019 till 2030 to reach Rs 1.47 lakh crore. Tata Consumer is looking for a bigger share in this pie.

What A Bisleri Acquisition Would Mean

The deal will be EPS-accretive for Tata Consumer Products. Bisleri is the market leader in the organised packaged water market with a share of 32%, followed by Coca-Cola’s Kinley and PepsiCo’s Aquafina. Bisleri has around 122 operational plants, of which it owns 13; around 4,500 distributors; and about 5,000 trucks across India.

Bisleri has maintained its leadership with revenue and profit growing at an annualised rate of 20% and 47%, respectively, over FY15 to FY20; and Ebitda margin of 17% in FY20.

The total market size of packaged drinking water is estimated to be around Rs 20,000 crore, of which the organised segment accounts for around Rs 8,000 crore.

Bisleri’s addition will result in synergies for NourishCo in the form of a wider distribution reach with an extensive ready-to-go-to-market network across retail stores, chemist channels, and other institutional channels, according to Motilal Oswal. It will also lead to economies of scale, aiding NourishCo's margin, it said.

Bisleri Acquisition Deal Valuation

Bisleri's management expects to end FY23 with an estimated revenue of around Rs 2,500 crore and a profit of around Rs 220 crore. This would mark the transaction at around 2.4–2.8 times the FY23 revenues and around 27–32 times the FY23 net profit, according to Motilal Oswal.

Likely Deal Structure

Motilal Oswal has listed four likely scenarios through which the deal could be completed. A preferential allotment or a rights issue are the most suitable options, according to the brokerage. If Tata Consumer goes ahead with the acquisition, then the preferential issue to promoter entities or rights issue will be accretive to earnings per share.

Motilal Oswal has a 'buy' on Tata Consumer Products with a target price of Rs 940 per share—implying a potential 27% upside from the current market price.

Of the 24 analysts tracking the stock, 19 recommend a 'buy', four suggest 'hold,' and one has a 'sell' call, according to Bloomberg data. The average of 12-month price targets implies a return potential of 17.5%.