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Tata Consumer Products Ltd.'s latest rights issue offers shares at a tempting 32.5% discount. While the offer appears attractive, particularly given the compelling valuation at a 50.9 times price-to-earnings ratio based on FY25 estimates, the decision to subscribe requires careful consideration.
With Tata Consumer's growth prospects outpacing its peers, this rights issue presents both an opportunity and a strategic choice for shareholders looking to enhance their investment portfolio. Here is a look at more details.
Rights Issue Details
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Number of shares: 3.6 crore equity shares of Rs 1 each.
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Fixed price: Rs 818 per share.
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Discount: 32.5%.
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Total mobilisation: Rs 2,998 crore.
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Subscription period: Aug. 5, 2024, to Aug. 19, 2024.
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Ratio: One share for every 26 shares held.
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Record date: July 27, 2024.
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Valuations
The rights issue is priced at a 50.9 times price-to-earnings ratio, as calculated by NDTV Profit, at Rs 818 apiece, based on FY25 earnings estimates.
Price-to-earnings for existing shareholders opting for rights issue will come to 73 times, based on FY25 earnings estimates.
This presents a compelling valuation opportunity for shareholders to increase their holdings at a more favorable P/E.
Tata Consumer's P/E ratio is, however, expected to remain higher than its peers, with Hindustan Unilever Ltd. trading at 58 times, Emami Ltd. at 40 times, and Dabur India Ltd. at 52 times, according to Bloomberg's FY25 estimates.
Growth Prospects
Tata Consumer's growth prospects stand out when compared to its peers. The company is expected to achieve a revenue CAGR of 15% and net profit CAGR of 31% over the next two years, as per Bloomberg estimates.
In contrast, Hindustan Unilever's revenue and net profit are projected to grow at CAGRs of 7% and 3%, respectively. Dabur is expected to see a revenue CAGR of 10% and a net profit CAGR of 14%, while Emami is projected to see revenue CAGR of 14% and net profit CAGR of 17%.
Nestle India Ltd., too, lags behind Tata Consumer, with expected revenue and net profit CAGRs of 10% and 4%, respectively.
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Renouncement Of Rights
Investors with Rights Entitlements in their demat account can sell or trade them on the stock market just like regular shares. The selling price will be the difference between the price at which the stock is trading and the price of right entitlement which is Rs 818 per share.
Taxation On Renouncement Of Rights
Where the right is renounced, the amount received will be fully taxable and cost of acquisition for this purpose will be taken as ‘nil’. Generally, this type of gain is short term and, therefore, it will be taxed at 20%.
Where the right is exercised, it will be taxable as if normal shares are purchased at discounted price, that is, the cost for this purpose will be the exercise price paid.
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