Tata Consumer Products announced two acquisitions on Friday – Capital Foods and Organic India – for Rs 7,000 crore, pointing to its intent of emerging as a well-rounded food & beverage company. In an interview with Viveat Susan Pinto, company MD & CEO, Sunil D’Souza, highlights the way forward for the firm and the synergies of the two acquisitions. Edited Excerpts:
How do you propose to raise money for the transactions?
We have Rs 3,000 crore in terms of cash on our books. We will utilise the money to fund the two transactions. For the other half of around Rs 4,000 crore, we propose to raise a short-term bridge loan and also look at a rights issue. So, it will be a mix of debt and equity. We will take these proposals to the board on January 19, when there will be a meeting to consider and approve fund-raising. We don’t foresee a problem in terms of fund-raising for these deals.
When will the two transactions close and how fast do you propose to integrate the two firms into Tata Consumer Products?
The Capital Foods transaction will close in two weeks from now. While Organic India will take around 45-60 days in terms of closure. In terms of integration, both Capital Foods and Organic India have a huge runway for growth and fit strategically into the platforms that we’ve built at Tata Consumer. So, integration from a portfolio perspective will not be a challenge for us, since these are high-growth adjacencies. Organic India, for instance, will help in the premiumisation of our tea portfolio with its organic teas and wellness products. The instant noodle and soups portfolio of Capital Foods fits perfectly into our breakfast and mini-meals platform. While Smith & Jones sauces, pastes etc will merge into our pantry portfolio.
The gaps as I see it are in distribution and work will start immediately there. Our total reach at Tata Consumer is close to 4 million outlets, of which 1.5 million stores are reached directly by us. Capital Foods, on the other hand, reaches around 0.34 million outlets. While Organic India sells in 24,000 outlets only. This means there is enormous potential to expand the distribution of these newly acquired brands at Tata Consumer.
Are you looking at more acquisitions in the future, especially, in international markets?
We intend to grow both organically and inorganically. Our key focus is India; the growth is in India. And our acquisitions will be India-focused. Of course, if we acquire brands in India and if they have an international presence, that would be great. It will allow us to expand our presence globally too. Both Organic India and Capital Foods have international legs. Half of Organic India’s business comes from international markets. 80% of this is in the US alone, where Organic India is present in premium stores. Capital Foods is also sold at every ethnic retailer globally. On top of that, Capital Foods does white labelling for some key retailers internationally such as the Patel brothers grocery chain in the US. All of this will help us expand our footprint into international markets further, taking advantage of the on-ground business of these brands.
Which other areas are you looking at from a growth perspective?
We’ve scanned the whole food & beverage market and know exactly where we want to play and where we don’t want to play. Right now, the focus will be to deliver on the business cases and targets we’ve set out to achieve with these two deals. We want to make sure that the engine hums smoothly once these acquired brands come into the Tata Consumer family.
Will you consider absorbing Ajay Gupta into the company once his earnout period is over?
That is for Ajay to decide. I have immense respect for him and for his ability to read the Indian consumer and their tastes. He is also a foodie and that will help us immensely in our journey as a food & beverage company. He has fantastic relationships with every ethnic retailer across the globe. We aim to leverage those relationships to not only drive the portfolio we are acquiring, but also our base business. He will be a consultant to us and advise us in a strategic capacity. Ajay will also hold a 5% stake in the company, which he can liquidate at a later stage.
As far as William Bissell (of Fabindia, who founded Organic India and owns over 40% of the firm) is concerned, we are working out his earnout period. Suffice it to say that both promoters wanted their legacies to be taken forward by the right partner. They have found that with the Tata group. And we propose to leverage their experience, knowledge and relationships as we grow the business.