Tata Consumer Products on Friday said that it was acquiring Mumbai-based Capital Foods, which makes the Ching’s Secret and Smith & Jones brands, for an enterprise value of Rs5,100 crore. The company said that it had entered into a share purchase deal and shareholders agreement to acquire the firm in an all-cash deal.
Tata Consumer has also acquired Organic India, promoted by Fabindia, for an enterprise value of Rs1,900 crore. The company is into organic teas and health foods. The deal with Organic India values the firm at over 5 times its FY24 estimates sales of Rs560-570 crore.
The transaction with Capital Foods, on the other hand, values the firm at 6.5-6.8 times its FY24 sales which is estimated at Rs750-770 crore. Sales of Capital Foods in FY23 stood at Rs900 crore, which was close to double its FY22 sales of Rs580 crore.
Earnings before interest tax depreciation and amortisation (Ebitda) margins for FY23 stood at 25%, according to sector analysts tracking the firm. The two-step transaction will see Tata Consumer initially pick up a 75% stake in Capital Foods for Rs3,825 crore. Existing investors Invus Group, a European family office with a 40% stake and private equity firm General Atlantic with a 35% stake will exit the company in this round. The balance 25% in the company, held by founder Ajay Gupta, will be picked up within three years for Rs1,275 crore.
More importantly, the deal will help Tata Consumer, best known for its tea, coffee and salt brands, to widen its portfolio to include noodles and condiments. The company will get ready access to the Indian Chinese instant noodle market, which is pegged at around Rs1,200 crore. Smith & Jones, on the other hand, caters to in-home cooking of Italian and other western cuisines.
“We believe this is a good strategic and financial fit. It will open up significant market opportunities in the fast-growing non-Indian cuisines segment, leveraging the sales and distribution platform that we have built,” Sunil D’Souza, MD & CEO, Tata Consumer Products, said on Friday.
Ching’s Secret’s is the market leader in the Indian Chinese instant noodle market, with an estimated market share of around 75-80%. Some of the other competitors in the market include Top Ramen and Wai Wai Noodles.
“The packaged food market in India shows enormous potential. Within this, instant noodles as a category is growing in double-digits because of the ease and convenience of preparation,” says Sachin Bobade, vice-president, research at brokerage Dolat Capital.
The total instant noodle market in India is pegged at around Rs12,000 crore, with Nestle’s Maggi estimated to have a share of 60%, while ITC’s Yippee brand has a share of around 25-30%, according to industry executives.
Nestle India among other majors such as The Kraft Heinz Co and food company Orkla, which owns MTR Foods, were initially in the race to acquire Capital Foods, when it was put on the block in late 2022.
Kotak Investment Banking and Khaitan & Co were Tata Consumer’s exclusive financial and legal advisors on this transaction respectively.