Tata Consumer Products on an acquisition spree

Tata Consumer Products , the food and beverage conglomerate, recently announced two new acquisitions, Capital Foods and Organic India for a staggering Rs 7,000 crore.

The company will acquire full ownership of Capital Foods for about Rs 5,100 crore and Organic India for Rs 1,900 crore. Subsequently, it announced a Rs 6,500 crore capital raise through a mix of debt (via commercial papers) and a Rs 3,000 crore rights issue.

Expanding horizons with two key acquisitions

Capital Foods, the entity behind well-known brands such as Ching's Secret and Smith & Jones, specialises in non-Indian cuisine, catering to the burgeoning demand for in-home consumption. The company experienced a remarkable growth spurt between FY20-21, with a three-year revenue growth of 20 per cent annually. However, post FY21-23, the growth rate moderated to about 3 per cent.

In contrast, Organic India focuses on high-growth sectors and generates approximately 40 per cent of its revenue from herbal supplements, another 40 per cent from tea and infusions, and the remaining 20 per cent from organic foods. With over 100 products in the health and wellness sector, Organic India's revenue reached Rs 324 crore in FY23.

Rationale behind the acquisitions

Tata Consumer aims to benefit from these acquisitions as they have a complementary product portfolio with no overlap. Capital Foods is a leader in several product categories and has an addressable market of Rs 21,400 crore.

Meanwhile, Organic India has a robust international presence with a premium portfolio and an addressable market of Rs 82,000 crore.

Purpose behind the fundraising

To facilitate these acquisitions, Tata Consumers plans to raise Rs 3,500 crore through commercial papers and Rs 3,000 crore through a rights issue, totalling Rs 6,500 crore. The commercial papers are intended for bridge financing for the acquisitions.

Investor corner

These acquisitions reflect Tata Consumer's ambition to diversify its portfolio and seek new avenues for growth. While Organic India offers a range of premium products, Capital Foods brings leadership in several product categories, seamlessly fitting into Tata Consumer's existing business model.

Despite the significant financial move, the company's debt-to-equity ratio is expected to remain unaffected. However, the terms of the rights issue will determine if there will be any dilution of promoter holdings. As of September 2023, Tata Consumers had a cash reserve of Rs 3,045 crore. After the acquisitions and repayment of bridge financing, the company's cash balance is anticipated to be around Rs 300 crore. Investors should also keep a close eye on the upcoming scheme of arrangement within the company.

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