The acquisitions will help the company gain access to products with a wider taste profile, enter new markets and broaden its portfolio with organic items that appeal to consumers seeking healthy alternatives.
The formal announcement is expected by early next week.
Scaling up in-house portfolio of brands
TCPL will be buying 75% of Capital Foods from existing investors Invus Group, a European family office and investment arm, with a 40% stake; US private equity group General Atlantic that owns 35% valuing the company at Rs 5100 crore. That would peg the stake value at Rs 3,825 crore. Invus is a European family office and investment arm. Founder chairman of Capital Foods and a former advertising boss turned food entrepreneur Ajay Gupta will retain his 25% stake for now but Tatas will buy him out too in future helping him unlock further value.TCPL will also be buying a controlling stake in Organic India for a Rs 1800 crore valuation from Fab India. Fabindia is backed by Premji Invest and Lighthouse Capital, and owns over 40% stake in Organic India, based in Lucknow.ET in its September 21 edition was the first to report that TCPL was the frontrunner for Capital Foods, that since 1995 had created a unique niche by launching a series of products with ‘desi’ flavours. These include Ching’s Secret instant noodles, soups, condiments, curry pastes and frozen entrees along with the Smith & Jones range of ginger-garlic paste, niche sauces and baked beans. Goldman Sachs since late 2022 had launched a formal sale process that attracted the likes of Nestle the world’s largest foods company, and The Kraft Heinz Co, Norwegian food giant Orkla, owners of MTR Foods among others. Kotak Mahindra has been advising Tatas.ET in its August 4 edition was also the first to report that Tatas and ITC were eyeing a significant stake in Organic India the maker of a wide range of premium organic teas and foods supplements.
The acquisition of Tatas will now pit TCPL directly against Nestle’s Maggi, which leads the Rs 5,000 crore branded instant noodles market with a 60% share. The Maggi franchise is part of Nestle’s prepared dishes and cooking aids business. Other players in the category include Top Ramen, Wai Wai and Patanjali.
Organic and wellness products have been growing in high-double digits, specially post Covid-19, and are forecasted to reach ?75,000 crore by 2025, according to the ‘Indian Organic Sector Vision 2025’ report by the commerce ministry.
This market is expected to grow as much as 16-18% a year till 2026-27. Tatas have been acquisitive—buying Soulfull, which makes breakfast cereals and millet-based snacks, in 2021. The company has been acquisitive—buying Soulfull, which makes breakfast cereals and millet-based snacks, in 2021. It clocked a 50% jump in revenue through brand extensions and new launches at low incremental costs.
But Capital Foods and Organic India will be the first significant acquisitions in several years by Tata Consumer which had been focused on sharpening and scaling up its inhouse portfolio of brands. The portfolio of Capital Foods will especially get the heft of Tata Consumer’s distribution network and marketing muscle, said highly placed officials close to the development. Tata Consumer will have access to an expanded global Indian diaspora with brands that have a pan Indian cuisine unlike the other more regional centric brands. The Tata company will also get brands that offer better business margins in the food space, officials said.
Tatas declined to comment. GA, Invus was not available for comment. Mails sent to Ajay Gupta and FabIndia spokesperson on Thursday evening did not generate any response till press time.
According to analysts who track TCPL, it’s been on a multi-year transformation journey, expanding from being a tea-and-salt company to a broader food and beverage franchise after the Tata Group rationalised and consolidated its portfolio, which includes a merger with Tata Coffee expected by end FY24. In May 2020, it bought out PepsiCo’s 50% stake in NourishCo Beverages Ltd, an equal JV between the two companies that houses brands such as Himalaya packaged water and GlucoPlus. However, it’s much-talked-about Rs 7000 crore takeover bid for Bisleri — India’s largest bottled water brand — didn’t succeed after close to two years of dialogue.
Buying Organic India offers Tata Consumer expansion into new categories. “This will be high margin infusions with supplements , organic foods and is probably the only “ real & kosher “ organic products in india. The brand in turn gets huge distribution opportunitie both within India & globally,” said an official in the know.
On December 29th, Tata Consumer Products joined the ranks of listed Tata Group companies with a market capitalization exceeding ?1 lakh crore, making it the sixth firm to achieve this milestone. It closed Thursday with a market value of Rs 1,04 lakh crore. The stock has appreciated 26.52% in the last 3 months.
“Tata Consumer offers a long growth runway as it transforms into a larger consumer packaged goods (CPG) company with aspirations beyond F&B. Significant scope for market share gains in the core tea and salt segments, besides scale-up of the India growth businesses, would support the growth trajectory. Strong FCF, improving return ratios, attractive long-term potential for Starbucks and the opportunity to leverage Tata Group assets (e.g., BigBasket) are other potential positive drivers,” said Latika Chopra of JP Morgan.
