Tata Consumer Products Ltd (TCPL) is set to announce two major transactions – the acquisitions of Capital Foods Pvt Ltd, renowned for its production of condiments, food products, and ingredients under the Ching’s Secret and Smith & Jones brands, as well as Organic India, a Fabindia-backed manufacturer of organic teas and health products. This marks the ending of months of negotiations, according to sources familiar with the matter.
The acquisitions will enable the company to access products with a broader taste profile, penetrate new markets, and diversify its portfolio with organic items catering to consumers seeking healthier alternatives.
The official announcement is anticipated early next week.
TCPL is set to acquire 75% of Capital Foods from current investors, including Invus Group, a European family office and investment arm, holding a 40% stake, and the US private equity group General Atlantic, which owns 35%, valuing the company at INR 5100 crore. This places the stake value at INR 3,825 crore. While Ajay Gupta, the founder chairman of Capital Foods and a former advertising executive turned food entrepreneur, will retain his 25% stake for the time being, the Tatas plan to buy him out in the future, enabling him to unlock additional value.
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TCPL will acquire a controlling stake in Organic India at a valuation of INR 1800 crore from Fab India. Fabindia, supported by Premji Invest and Lighthouse Capital, currently holds over 40% ownership in Organic India, based in Lucknow.
On September 21, reports indicated that TCPL was leading the race to acquire Capital Foods, a company that has carved out a distinctive niche since 1995 by introducing a range of products with authentic ‘desi’ flavors. These offerings encompass Ching’s Secret instant noodles, soups, condiments, curry pastes, and frozen entrees, as well as the Smith & Jones line featuring ginger-garlic paste, specialized sauces, and baked beans. Goldman Sachs initiated a formal sale process in late 2022, attracting interest from major players such as Nestle, the world’s largest food company, The Kraft Heinz Co, Norwegian food giant Orkla, and the owners of MTR Foods, among others. Kotak Mahindra has been providing advisory services to the Tatas.
On August 4, there were reports indicating that both Tatas and ITC were considering the acquisition of a substantial stake in Organic India, a producer known for its diverse range of premium organic teas and food supplements.
Tata Consumer Products to Compete in the Branded Instant Noodles Market:
With the Tatas’ acquisition, TCPL will now directly compete with Nestle’s Maggi, the leader in the INR 5,000 crore branded instant noodles market, commanding a 60% share. The Maggi franchise falls under Nestle’s prepared dishes and cooking aids business. Competitors in this category include Top Ramen, Wai Wai, and Patanjali.
Organic and wellness products have experienced robust double-digit growth, particularly in the post-Covid-19 period, and are projected to achieve a valuation of INR 75,000 crore by 2025, as outlined in the ‘Indian Organic Sector Vision 2025’ report by the commerce ministry.
The market is anticipated to witness annual growth of 16-18% until 2026-27. Tatas, known for their acquisitive approach, acquired Soulfull in 2021, a company specializing in breakfast cereals and millet-based snacks. Demonstrating impressive financial performance, the company achieved a 50% increase in revenue through brand extensions and the introduction of new products at minimal additional costs.
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However, Capital Foods and Organic India will mark the first substantial acquisitions in several years for Tata Consumer, which has been dedicated to refining and expanding its in-house portfolio of brands. According to well-placed officials familiar with the matter, the Capital Foods portfolio will particularly benefit from Tata Consumer’s extensive distribution network and robust marketing capabilities. This strategic move will provide Tata Consumer access to an enlarged global Indian diaspora through brands that encompass a pan-Indian cuisine, distinguishing them from other more regionally focused brands. Additionally, officials noted that these acquisitions will bring brands offering improved business margins in the food sector for the Tata company.
Tatas refrained from providing a comment. GA and Invus were unavailable for comment. Emails sent to Ajay Gupta and the FabIndia spokesperson yielded no response as of press time.
As per analysts closely monitoring TCPL, the company has embarked on a multi-year transformation, evolving from a tea-and-salt-focused entity into a more extensive food and beverage franchise. This transformation occurred following the Tata Group’s rationalization and consolidation of its portfolio, including an anticipated merger with Tata Coffee by the end of FY24. In May 2020, TCPL acquired PepsiCo’s 50% stake in NourishCo Beverages Ltd, a joint venture featuring brands like Himalaya packaged water and GlucoPlus. However, its highly publicized INR 7000 crore takeover attempt of Bisleri, India’s largest bottled water brand, did not materialize after nearly two years of negotiations.
Diversification Opportunity: Tata Consumer Products and Organic India
The acquisition of Organic India provides Tata Consumer with an opportunity to diversify into additional product 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 became the sixth Tata Group company to achieve a market capitalization surpassing INR 1 lakh crore, joining the ranks of listed firms with this milestone. As of Thursday, it concluded with a market value of INR 1.04 lakh crore. The stock has witnessed a 26.52% appreciation in the last three 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.
