Tata Consumer’s Ambitious Plan WIth Capital Foods & Organic India Acquisition

Organic India Acquistion

Tata Consumer Products Ltd is all set to take its empire to greater heights with Capital Foods & Organic India acquisition! Why all these acquisitions all of a sudden? Well, these are nothing but strategic moves by the conglomerate to diversify its food profile and to penetrate the new markets especially the organic ones. You all know well how health-conscious our consumers have become after the pandemic!

Organic India Acquistion

Tata is already dominating the tea and salt segment. So, now it is planning to explore and dominate more such segments.

Surprisingly that’s not the only aim of Capital Foods and Organic India acquisition. Tata Consumer’s ambition is far beyond the imagination of ordinary folks. What’re those? Stick to this article and you will find out!

(A) Story So Far

Tata Consumer Products Ltd (TCPL) is set to make waves in the market with the acquisition of Capital Foods and Organic India in separate groundbreaking deals.

So what will happen?

As you have read above, Capital Foods, the powerhouse behind Ching’s Secret and Smith & Jones brands, and Organic India, known for its organic teas and health products, are about to become part of TCPL’s diverse offerings. 

Aspects of the AcquisitionCapital FoodsOrganic India
Acquisition Details100% equity shares, phased acquisition100% equity shares, all-cash deal
Enterprise Value₹5,100 crore (no cash-no debt)₹1,900 crore 
Stake Acquisition75% upfront, 25% within the next three yearsAdditional earnout for shareholders linked to FY26 financials
Estimated Turnover (FY24)₹750 to 770 crore₹360 – ₹370 crore 
Capital Foods and Organic India acquisition by TCPL

This strategic move by TCPL isn’t just about expanding its product portfolio; it’s a bold step towards elevating the company’s revenue, although the impact on the earnings of the food and beverages arm of the massive $103-billion Tata Group won’t be immediate.

In a definitive agreement signed on a Friday, TCPL is gearing up to acquire 100% equity shares of Capital Foods, including the iconic Ching’s Secret and Smith & Jones brands. The story doesn’t end there – Organic India, specialising in organic herbal teas and health foods, will also join the TCPL family in an all-cash deal.

Hold on, there’s a twist!

 TCPL will acquire Capital Foods in phases, with an enterprise value pegged at ₹5,100 crore on a no cash-no debt basis. While 75% of the equity shareholding will change hands upfront, the remaining 25% is slated for acquisition within the next three years. Meanwhile, the 100% stake in Organic India comes with a ₹1,900 crore price tag, plus an extra earnout for shareholders linked to FY26 audited financials.

The suspense surrounding Capital Foods’ ownership has finally ended with this deal, putting an end to months of speculation and intense bidding wars involving rivals like Nestle and ITC. TCPL’s strategic intent to broaden its product portfolio and target addressable market aligns seamlessly with these acquisitions.

Capital Foods’ revenue report for FY23, a whopping ₹705.5 crore, sets the stage for a promising future, with an estimated turnover for FY24 ranging from ₹750 to 770 crore. Ching’s Secret’s dominance in Desi Chinese cuisine and Smith & Jones’ growth in home-cooked Italian and Western cuisines make Capital Foods a significant player in five large categories.

Sunil D’Souza, MD & CEO of Tata Consumer Products, expressed excitement about the acquisitions, foreseeing substantial market opportunities. 

He emphasised the strategic and financial fit with Capital Foods, expecting accelerated momentum and improved margins. 

As for Organic India, D’Souza sees it as a perfect match for Tata Consumer’s strategic objectives, tapping into the burgeoning health & wellness segment with a robust organic supply chain and a loyal consumer base.

The overall impact of these acquisitions is massive, with the categories Capital Foods operates in estimated at ₹21,400 crore, and Organic India’s presence contributing to a ₹7,000 crore market in India and a whopping ₹75,000 crore in international markets. 

The stage is set, and Tata Consumer Products is gearing up for a remarkable journey in the ever-evolving landscape of the food and beverage industry.

Note: When it comes to mergers and acquisition, the potential impact of epic Tata Steel merger on India can’t be ignored. Check out the article for detailed information.

(B) Why Organic Foods and Organic India Acquisition matters?

Let’s unveil the transformation journey of Tata Consumers Private Limited-

(B.1) TCPL’s Bold Move into Diversification

Tata Consumer Products Ltd (TCPL) is embarking on a groundbreaking journey with its recent acquisitions, marking the company’s first significant ventures in several years. This strategic move is not just about expanding; it’s about transforming TCPL from a tea-and-salt company into a comprehensive food and beverage enterprise.

(B.2) Capital Foods: A Boost to the Portfolio

TCPL’s acquisition of Capital Foods brings a wide array of products, including the popular Ching’s Secret and Smith & Jones brands, encompassing instant noodles and sauces. The synergy lies in TCPL’s robust distribution network and marketing prowess, promising to elevate Capital Foods’ offerings to new heights.

(B.3) Organic India: Riding the Wellness Wave

The addition of Organic India aligns seamlessly with the evolving consumer landscape, where the demand for organic and wellness products is soaring. This move taps into a market projected to hit ₹75,000 crore by 2025. Organic India’s expertise in organic herbal teas and health foods positions TCPL strategically in the flourishing wellness segment.

In the upcoming sections, we will dive deeper into the ambitious plan of Tata Consumer with Capital Foods and Organic India acquisition.

(C) A Brief Overview on Latest Buyouts

Let’s have a look at the transaction details of both the acquisitions-

(C.1) Ching’s Deal: A Game-Changer in Brand Acquisition

Tata Consumer is making waves with its largest brand acquisition to date – Ching’s. The deal involves purchasing 75% of Capital Foods Pvt., the genius behind Ching’s sauces and noodles. 

Buyout Aspects of Capital FoodsDetails
Acquisition Stake75%
Selling StakeholdersInvus Group (40%), 
General Atlantic (35%)
Valuation of Capital FoodsRs.5,100 crore
Value of Acquired StakeRs.3,825 crore 
Timeline for full acquisitionWithin the next three years
Buyout aspects of Capital Foods

The existing investors, including Invus Group (40% stake) and General Atlantic (35% stake), will sell their shares, valuing Capital Foods at a whopping Rs.5,100 crore. This equates to a staggering Rs.3,825 crore for the acquired stake, with plans to secure the remaining 25% within the next three years.

(C.2) Organic India: A Fabulous Investment

In tandem with the Ching’s deal, Tata Consumer is set to acquire Fabindia-backed Organic India for a hefty sum of Rs 1,900 crore.

Buyout Aspects of Organic IndiaDetails
Acquisition AmountRs.1,900 crore  
Transaction Value5.2 times the estimated net sales (as per investor presentation)
Buyout aspects of Organic India

This strategic move aligns with Tata’s vision to expand its product portfolio and penetrate high-margin categories, addressing the burgeoning demand for wellness products.

(C.3) Transaction Metrics: Crunching the Numbers

The investor presentation sheds light on the financial metrics behind these acquisitions. For Capital Foods, the transaction is valued at 6.8 times the estimated FY24 net sales, demonstrating the substantial premium placed on the brand. Meanwhile, the Organic India deal is set at 5.2 times the estimated net sales, underlining Tata’s commitment to securing a robust position in the health and wellness market.

(C.4) Financial Strategy: Balancing the Books

Tata Consumer plans to finance this ambitious venture through a mix of cash reserves, debt, and equity issuance. As of September 30, 2023, the company boasted a net cash reserve (excluding borrowings) of Rs.2,526 crore, providing a solid financial foundation. The board is set to deliberate on Jan. 19 to seek approval for a combination of rights issue, debt, and equity to ensure a seamless execution of the deal.

(C.5) Leveraging Debt-Equity Dynamics

With a comfortable debt-equity level, Tata Consumer has the flexibility to borrow from the market. A strategic move involves raising approximately Rs 3,000 crore in short-term debt, which is expected to be converted to equity subsequently. This manoeuvre allows Tata Consumer to leverage its financial position, paving the way for a transformative foray into the food and beverage industry.

(D) Tata Consumer’s ambition behind acquiring Capital Foods

Capital Foods

Tata Consumer Private Limited’s decision to acquire Capital Foods is driven by the latter’s ingenious identification and labeling of “desi Chinese” cuisine. Loved not only in India but also in the U.S., Canada, Australia, the U.K., and Singapore, Capital Foods boasts a stellar lineup, including Ching’s Secret schezwan chutney, instant soups, Chinese masalas, sauces, hakka noodles, and more.

(D.1) Ching’s Dominance in Market Categories

According to Tata Consumer’s investor presentation, Ching’s, a part of Capital Foods, reigns supreme in various categories like Schezwan chutneys, blended masala (desi Chinese), sauces, and ginger garlic paste, claiming shares of 87%, 55%, 27%, and 12%, respectively.

(D.2) Massive Market Potential

The total addressable market for Capital Foods’ categories stands at a whopping Rs 21,400 crore, with Tata Consumer anticipating a robust 13% CAGR growth until 2027. The driving forces include rising incomes, the inclusion of global cuisines in home cooking, and the convenience factor. The “in-home” desi-Chinese segment alone is estimated to surge at a remarkable 24% CAGR.

(D.3) Financial Strength of Capital Foods

Capital Foods doesn’t just bring flavor to the table; it boasts an estimated Ebitda margin of 20% for FY24, showcasing its financial strength.

(D.4) Strengthening the Pantry Platform

Tata Consumer sees this acquisition as a strategic move to fortify its pantry platform, anticipating significant synergy benefits across distribution, logistics, exports, and overheads.

(D.5) Projected Revenue Growth

With a projected top line of Rs.750-770 crore for FY24, Capital Foods is poised to drive strong double-digit revenue growth, potentially surpassing Tata Consumer’s current trajectory.

(D.6) Market Dynamics and Competition

Nestle’s Maggi currently leads the branded instant noodles market with a 60% share. The deal positions Tata Consumer to compete directly, with the market expected to grow four times its current size by 2035. This move could intensify competition in the noodles and cooking aids sector, impacting players like Nestle, ITC Ltd.’s YiPPee!, Top Ramen, Wai Wai, and Patanjali.

(D.7) Distribution and Manufacturing Strength

Capital Foods doesn’t just bring products; it comes with a robust distribution network, marketing muscle, and well-established co-manufacturers and manufacturing plants in Vapi, Nashik, and Gandhidham.

(D.8) Competition Landscape

In the cooking paste and condiments categories, Capital Foods competes with both branded and unorganized players, including Mother’s Recipe, Dabur Ltd., and ITC Ltd.

As Tata Consumer blends its strengths with Capital Foods’ flavors, a delectable future awaits in the dynamic world of food and beverages. So yes, that’s a part of its strategic growth!

(E) Ambition of TCPL for Organic India Acquisition

Organic India acquisition by TCPL

In another strategic move, TCPL is all set with Organic India acquisition while aiming to tap into a burgeoning market. The total addressable market for tea and infusions, herbal supplements, and packaged food (including ghee, honey, and jaggery powder) is projected at a substantial Rs.7,000 crore in India and a whopping Rs.75,000 crore in international markets, where Tata Consumer already holds a strong presence.

(E.1) The Organic India Portfolio

Organic India, a 25-year-old premium brand, brings a rich portfolio of over 100 health and wellness products to the table. With an impressive gross margin of 55%, the company is set to make waves in the wellness space.

(E.2) Projected Top Line and Manufacturing Presence

Despite being currently unprofitable, Organic India is projected to reach a top line of Rs.360-370 crore for FY24. The company operates four manufacturing plants with low utilisation, strategically located in Uttar Pradesh, Rajasthan, Madhya Pradesh, and Uttarakhand.

(E.3) Growth Prospects and Structural Drivers

Tata Consumer’s presentation highlights that Organic India’s addressable market is poised for robust growth. With an estimated CAGR of 11% in the domestic market and 8% overseas, the structural drivers include the rising demand for health and wellness products, increasing consumer awareness, and evolving preferences due to lifestyle changes, ailments, and obesity.

(E.4) Synergies and Opportunities

The acquisition isn’t just about products; it’s about unlocking synergies. Tata Consumer envisions benefits in distribution, logistics, and overheads. Additionally, the move will drive portfolio premiumization and open up new channels like pharma, maximize exports, and enter untapped local markets.

(E.5) Global Expansion and New Product Categories

This strategic move also propels Tata Consumer into key organic product categories globally, such as quinoa and pulses. It opens the door to potential additions in allied categories like protein and child nutrition.

As Tata Consumer embraces this wellness-oriented acquisition, it’s not just about products; it’s about embracing a healthier and more diverse future.

(F) Tata Consumer’s Winning Streak: Navigating Inorganic Growth through acquisitions

Tata Consumer Products

Tata Consumer Products’ CEO, Sunil D’Souza, always emphasized that inorganic expansion would play a pivotal role in driving growth for the food and beverage segment of the colossal $103-billion Indian conglomerate. Let’s delve into their remarkable track record.

(F.1) Proven Success: Past Acquisitions

Since its formation in 2020, Tata Consumer Products has demonstrated an impressive ability to scale up through acquisitions. Two significant additions to their portfolio include NourishCo Beverages Ltd. and the cereal brand Soulfull.

(F.2) NourishCo’s Transformation Journey

NourishCo, initially a joint venture between Tata Consumer and PepsiCo in 2010, witnessed a turning point in 2022 when Tata Consumer acquired PepsiCo’s stake for Rs.13 crore. The numbers speak for themselves – NourishCo’s revenue soared at a CAGR of 32% over FY12-20 during the joint venture period. 

Post-acquisition in FY21, the growth pace accelerated to 38%, even in the face of the pandemic. Notably, NourishCo achieved Ebit positivity, with margins climbing from 3% in FY21 to an impressive 6% in FY22, driven by strategic synergies.

(F.3) Post Innovation and Revenue Surge

Under Tata Consumer’s wing, NourishCo introduced a variety of non-carbonated and ready-to-drink beverages. Innovation contributed significantly, reaching 10% of sales in FY22. In FY23, NourishCo’s revenue skyrocketed by 80% YoY, reaching Rs.620 crore. D’Souza envisions NourishCo reporting four-digit sales in FY24, showcasing the remarkable success of this acquisition.

(F.4) Soulfull’s Resounding Growth

Tata Consumer’s acquisition of the cereal brand Soulfull also paints a picture of success. Soulfull’s revenue more than doubled YoY, coupled with improved profitability. Strategic initiatives aimed at reducing manufacturing and freight costs have played a pivotal role. Soulfull’s market reach expanded dramatically, from 15,000 outlets at the time of acquisition to over 0.4 million outlets today.

As Tata Consumer continues its growth trajectory through strategic acquisitions, the success stories of NourishCo and Soulfull stand as testaments to their prowess in steering acquisitions towards prosperity. With Capital Foods and Inorganic India acquisitions, we will see more chapters of success in the vibrant world of TCPL food and beverages!

(G) Summing Up Capital Foods and Organic India acquisition: A Glimpse into the future

These acquisitions are not just isolated endeavours; they form a crucial part of TCPL’s broader transformation journey. The company’s recent achievement of a market capitalization exceeding ₹1 lakh crore underscores its ambitious growth trajectory and strategic market positioning. TCPL is ready to make waves in the food and beverage sector, challenging market leaders and venturing into lucrative product categories.

With these strategic moves, TCPL is poised to compete more fiercely in the dynamic food and beverage sector. The acquisitions of Capital Foods and Organic India signal TCPL’s determination to not only keep up with market trends but also shape them. 

Soon, we will witness TCPL’s evolution as it steps into a new era of diversified and impactful ventures!

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Published By: Supti Nandi
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