On Friday, TCPL signed definitive agreements to acquire 100% equity shares of Capital Foods, owner of the Ching’s Secret and Smith & Jones brands, and Organic India, a company that sells organic teas and health foods. TCPL will pay an enterprise value on a no cash-no debt basis of ₹5,100 crore for 100% stake in Capital Foods, and for a 100% stake in Organic India, TCPL will pay ₹1,900 crore, along with an additional earn-out for the shareholders linked to FY26 audited financials of the company, the company said while announcing the acquisitions Friday.
The company will complete the integration of the two businesses over the next three-to-four months, with plans to leverage TCPL’s existing distribution muscle to further the reach of the recently acquired brands—both in India and overseas. Meanwhile, the company will continue to scout for opportunities as it builds a “large” fast moving consumer goods (FMCG) business in India and overseas.
“In the immediate-to-short term, the board has reposed enormous confidence in the management team per se by allowing us to do this. I think the first task is to deliver against what we’ve said we can do with these brands. You can never time inorganic opportunities. If and when something comes up, we will evaluate it on its merits. Our big focus is India; the growth is in India, we aim to be a large player here, but the icing on the cake is if we acquire something in India and it has international legs, that would be a fantastic opportunity,” Sunil D’Souza, MD and CEO, TCPL, said in an interview with Mint on Sunday.
The work to integrate the newly acquired businesses with TCPL will start with immediate effect. “So, distribution has significant gaps and given our footprint is far bigger, we should be able to pull this off quickly. There’s not too much work to be done on the portfolio because almost everything is complementary. We will be very, very quick about it, three-to-four months is the target that we have set for ourselves,” he added.
In FY23, the maker of Tata Tea and Tata Salt, posted a 11% jump in consolidated revenue to ₹13,783 crore.
TCPL’s products are distributed in over 4 million outlets. Meanwhile, Organic India sells in 24,000 outlets while Capital Foods’ brands currently reaches 3.4 to 3.5 lakh outlets. This presents a “huge runway” to expand distribution of the newly acquired brands, he said.
The move comes as more food companies are stepping up investments in new food plants, research centers, as well as buying regional and national food players, anticipating greater demand for packaged foods in India.
In the past, TCPL has publicly stated its intent to expand to new categories while actively scouting for acquisition opportunities as it transforms itself to become a large FMCG player. In 2021, TCPL, acquired Kottaram Agro Foods, the owner of Soulfull that sells millet-based cereals. “That (new acquisitions) move us into adjacencies which are high growth,” he said.
TCPL unites the food and beverage interests of the Tata Group under one umbrella. The company’s portfolio of products includes tea, coffee, water, beverages, salt, pulses, spices, ready-to-cook and ready-to-eat offerings, breakfast cereals, snacks and mini meals.
D’Souza said the company’s portfolio now covers breakfast, mini meals, snacking, ready to drink—categories it has identified as “key pillars” of growth. “Within those brands we will now look at category expansion, but that’s not to say that we will not keep a lookout for opportunities as and when they come,” he added.
D’Souza said the two acquisitions will be top line accretive and margin accretive. “In terms of growth rates of the businesses, of the categories, they are significantly above where TCPL is trending. In terms of gross margins (including all variables, freight, etc), these are significantly accretive to TCPL. From a top-line perspective, it is right up our alley, gets us into categories which we don’t play in, and gets us into high growth, high margin categories,” he said.
Capital Foods operates in a category with 50% gross margins, while Organic India operates in categories with gross margins of over 55%, according to a company presentation. The acquisitions will give TCPL room to drive double-digit growth over the medium-to-long run. Capital Foods is expected to close FY24 with net revenues of ₹750 crore.
“We have always guided for double-digit top line growth, and EBITDA growth ahead of the top line; I would say this would only accelerate it by a decent amount of basis points,” he added.
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Published: 14 Jan 2024, 02:48 PM IST