Tata Consumer Products (TCPL) plans to finance its acquisitions of Capital Foods Ltd and Organic India Ltd, with a combined enterprise value of INR 7,000 crore, using internal cash reserves and bridge financing, according to MD and CEO Sunil D’Souza. D’Souza emphasized that both acquisitions operate in sectors with a significant growth potential, attractive profit margins, and a robust business growth rate.
Furthermore, TCPL intends to enhance its food and beverage portfolio through organic means to address existing gaps. However, the company will also actively explore inorganic growth opportunities, especially if they involve superior brands, technology, and teams, as highlighted by Sunil D’Souza.
Last Friday, TCPL announced the complete acquisition of Capital Foods, which owns brands like Ching’s Secret and Smith & Jones, at an enterprise valuation of INR 5,100 crore, and Fab India-backed Organic India, which operates in the health and wellness category, at an enterprise value of INR 1,900 crore.
Continue Exploring: Tata Consumer Products seals INR 7,000 Crore dual acquisition, adding Capital Foods and Organic India to portfolio
The Tata Group FMCG arm will finance half of these two all-cash deals through internal accruals.
“We have a decent amount of cash sitting on our balance sheet, but obviously will require far beyond that to make sure we fund it,” said D’Souza.
TCPL’s board is scheduled to meet on January 19 to deliberate on the proposal for fundraising through debt issues in the form of commercial papers/debentures and equity issues.
Continue Exploring: Tata Consumer Products mulls fundraising strategies after INR 7,100 Crore dual acquisitions announcement
“Right now the proposal that we are putting in front of our board is a short- term, whichever way we do on equity which is going to take time and therefore we will look at a short-term debt. I would say bridge financing with that but we will also look at equity funding further on. Right now we are exploring all options including a possible rights issue as we go forward,” he said.
TCPL, which is a relatively new company in the FMCG sector, has made some acquisitions in the past to increase its play in the food segment and would continue to evaluate more options.
“This is the very start of our journey. We have a long way to go. Therefore we intend to keep dry powder ready in case options come up in the future as well,” he said.
Tata Consumer Products’ Value Creation through Acquisitions:
When asked specifically about the next acquisitions, D’Souza said they are not in a “hurry” and in the short term, they would focus on integrating these two companies properly.
“But yes, we will continue to keep our eyes open for opportunities that come along,” he said adding “We will seek to create value as and when we look at inorganic opportunities.”
When asked about gaps in the offering of TCPL in the food & beverages segment, D’Souza said TCPL has already decided the strategic categories in which it will operate.
“Most of it (gaps) are by choice and not by default,” he said adding if there are some areas by default which has opportunities, then the preferable route will be organic.
“But there will be opportunities, where someone does a far better job, has got a far better brand or it has got far better technology far better team. We will continue to look at those opportunities,” he added.
The Tata Group firm has the ambition to become a large FMCG company.
“In the short to medium term we will first build food and beverage before we get to the FMCG spaces. We have defined our strategic priorities in terms of which are the categories that we will operate in whether it is our core, we will look at the pantry now we have got Sampann Foods and Capital Foods to play in the pantry,” he said.
Besides, TCPL is looking to move up the value chain.
“Therefore whether it is Organic India in the core or Capital Foods as we enter pantry and mini meals etc, the margin profiles of these categories are significantly accretive to Tata Consumer. We will continue to focus on to deliver double-digit growth and EBITDA, ” he said.
TCPL – which owns iconic brands such as Tata Tea, Tetley and Tata Salt – had a revenue in FY23 of INR 13,783 crore.
In 2011, TCPL acquired Bengaluru-based Kottaram Agro Foods for INR 155.8 crore to expand its product portfolio.
