Tata Consumer Products Ltd. (TCPL) has emerged as the frontrunner to acquire Capital Foods Pvt. Ltd., the renowned maker of condiments, food products, and ingredients under the Ching’s Secret and Smith & Jones brands. This announcement marks the end of weeks of protracted negotiations between the companies, according to sources with knowledge of the matter.
The proposed acquisition involves TCPL initially purchasing a substantial 65-70% stake in Capital Foods from its three primary investors, with the possibility of acquiring the remaining shares over time. The estimated value of the company stands at an impressive INR 5,500 crore. Notably, other contenders in the race included Nestle SA, the world’s largest food company, and Kraft Heinz Co.
Capital Foods has gained recognition over the years for its diverse range of products featuring authentic Indian flavors. These offerings encompass Ching’s Secret instant noodles, soups, condiments, curry pastes, and frozen entrees, as well as the Smith & Jones line of ginger-garlic paste, niche sauces, and baked beans.
While the legal documentation and final negotiation rounds are currently underway to determine the extent to which existing shareholders will retain their stakes or exit entirely, Kotak Mahindra is advising TCPL on this strategic move.
The sale process was initiated late last year when Capital Foods’ three main shareholders made the decision to sell the company. These shareholders include Invus Group, a European family office and investment arm (with a 40% stake); US private equity group General Atlantic (35%); and Ajay Gupta (25%), founder chairman of Capital Foods and a former advertising professional turned food entrepreneur.
The potential buyout puts TCPL in direct competition with Nestlé’s Maggi, which leads the INR 5,000 crore branded instant noodles market with a commanding 60% share. It’s worth noting that Maggi is part of Nestle’s prepared dishes and cooking aids business, alongside competitors like Top Ramen, Wai Wai, and Patanjali.
While both TCPL and Capital Foods have refrained from commenting on market speculation, it is anticipated that Ajay Gupta will remain with the company for the time being, although his specific role remains uncertain.
The sale process garnered interest from various multinational and domestic consumer companies, including ITC, Hindustan Unilever, Orkla, Nissin Foods, and McCormick. The initial asking price was significantly higher, close to $1.5 billion (INR 12.45 crore).
Although Capital Foods’ FY23 financial numbers are yet to be filed with the Registrar of Companies (RoC), sources close to the company anticipate sales reaching INR 900 crore with a 25% EBITDA margin. The core business has maintained a remarkable compounded annual growth rate (CAGR) of 30%, outpacing its peers, who have experienced single-digit growth.
Industry analysts suggest that recent acquisitions and deals, such as this potential acquisition, signal a resurgence in valuations within the FMCG market. While most brands have surpassed pre-Covid sales and volumes, the rural market’s weaker performance over the past six quarters has affected overall growth. Experts predict that the upcoming festive season, improvements in the supply chain, declining raw material prices, potential interest rate reductions, enhanced liquidity, and anticipation of elections will collectively boost both rural and urban sales of fast-moving consumer goods (FMCG) products.
Capital Foods witnessed substantial growth during the pandemic as consumers stocked up on packaged foods. However, sustaining such growth may require the support of a national player with extensive distribution and robust advertising and marketing capabilities.
TCPL has been on a transformative journey, expanding beyond its tea-and-salt origins to become a comprehensive food and beverage franchise. The company’s stock has appreciated by 24% in the past six months. While tea and salt contribute to approximately 85% of its revenue, newer growth segments in beverages and food, such as NourishCo, Sampann, and Soulfull, are growing at an impressive CAGR of over 40%.
TCPL has also been actively engaged in acquisitions, including the purchase of Soulfull, a maker of breakfast cereals and millet-based snacks, in 2021. Additionally, the company acquired PepsiCo’s 50% stake in NourishCo Beverages Ltd., a joint venture that houses brands such as Himalaya packaged water and GlucoPlus.
Despite its unsuccessful takeover bid for Bisleri after nearly two years of negotiations, TCPL remains committed to pursuing strategic acquisitions that align with its growth objectives.
Furthermore, TCPL has been focusing on expanding its distribution network by targeting a total reach of 4 million outlets by the end of this calendar year. The company has also implemented split routes for salesmen in cities with populations exceeding one million while simultaneously investing in direct distribution in smaller towns. Analysts expect these initiatives to drive revenue growth rates and market share upwards in FY24–25.
The potential acquisition of Capital Foods by TCPL signifies a significant move in the FMCG sector, with TCPL poised for further expansion and growth in its diverse portfolio of food and beverage products. The outcome of this high-stakes deal will undoubtedly shape the future of the industry and consumer choices in India’s dynamic food market.