This may be one of the largest buyouts of a homegrown consumer brand as the three major shareholders of Capital Foods Pvt Ltd, the makers of condiments, food products, and ingredients under the Ching’s Secret and Smith & Jones brands, have decided to put the company up for sale.
US private equity groups General Atlantic (35%), Invus Group (40%), a European family office and investment arm, and former advertising honcho turned food entrepreneur and founder chairman Ajay Gupta (25%), who together own the company, have mandated Goldman Sachs to find a suitor for a complete sale at a $1.5-$2 billion valuation or alternatively buy a significant minority stake and take the company public.
A formal auction process is due to begin in the coming weeks. Also, many times, global food and beverage giants like Nestle, Kraft Heinz, Hindustan Unilever, Orkla, Nissin Foods, McCormick, or domestic FMCG players like ITC and Tata Consumer Products have reached out to the shareholders for a bilateral transaction. Sensing the opportunity, the shareholders have decided to formally launch a competitive auction process to unlock maximum value.
Even though no private equity funds will be allowed to bid, feelers are expected to go out to a wide range of players like Reliance Industries, Dabur India, and PepsiCo, among others, and either a partnership or a full sale option is on the table. Depending on the final bids, they will decide whether to sell or retain a stake with a larger conglomerate and opt for a public listing.
Over the time, Capital Foods has launched a series of unique “desi” Chinese and Italian portfolio of Ching’s Secret instant Chinese noodles, soups, condiments, curry pastes and frozen entrees along with the Smith & Jones range of ginger garlic pastes, niche sauces, and baked beans.
Ajay Gupta, chairman of Capital Foods, said the company has been in talks with bankers for a potential initial public offering by next year.
After consumers hunkered down in their homes due to coronavirus-related restrictions and loaded their pantry with packaged food, sauces and dips saw a sales boost as Indians cooked more at home over the past two years. However, noodles, sauces, and condiments that Capital Foods sold at key channels—hotels, restaurants, and caterers (HoReCa)—were impacted due to reduced mobility and the work-from-home trend. While sales have now recovered across food segments, the market is increasingly competitive, especially from newer direct-to-consumer companies.
Capital Foods reported revenues of Rs. 580 crores for the fiscal year ended March 2022, a 14% decrease from the previous year. It also slipped to losses of Rs 7.4 crore during FY22, compared to a net profit of Rs. 68.7 crore in FY21, according to financials sourced from AltInfo. The company’s current revenue run rate is Rs. 1000 crore, and it is expected to close FY23 with a topline of Rs. 750–800 crore and gross margins of 52–55%, as opposed to an industry average of 40–45%.