For the last one year, the Mumbai-based Capital Foods, which is the maker of the Ching’s Secret instant noodle brand and Smith & Jones sauces, is in the news as a potential acquisition target. While attention all these months revolved around the interest shown by players such as Nestle India and ITC in the company, Thursday saw the name emerge of Tata Consumer Products as the frontrunner to acquire the firm.
Sales of Capital Foods in FY23 are estimated at Rs 900-1,000 crore, almost double of Rs 580 crore in FY22. Earnings before interest tax depreciation and amortisation (Ebitda) margins for FY23 have been pegged at 25%. The company is yet to disclose its financial numbers to the Registrar of Companies. The estimates have been made by analysts tracking the domestic food and fast-moving consumer goods (FMCG) market.
Media reports have suggested that Capital Foods has been valued at Rs 5,500 crore in ongoing talks with Tata Consumer, which is 5.5-6 times of FY23 sales of the company. Tata Consumer may buy around 65-70% of the firm in the first phase of the transaction, with the balance to be acquired later. Executives at Tata Consumer were not immediately available for comment. Ajay Gupta, who is the founder and non-executive chairman of Capital Foods, did not respond to calls and text messages. He holds a 25% stake in the company, with private equity players Invus Group and General Atlantic holding 40% and 35%, respectively, in the company.
But the consistent interest that global and Indian firms have shown in Capital Foods has to do with the domination of the Ching’s Secret instant noodle brand within the Indian Chinese food category, say experts.
According to industry estimates, the Indian Chinese instant noodle market is pegged at around Rs 1,200 crore, with Ching’s Secret’s market share pegged at 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, Dolat Capital.
The total instant noodle market in India is pegged at around Rs 12,000 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.
Bobade says that while Capital Foods will be a good complement for Nestle, it may not be a strong fit for Tata Consumer, which has no presence in instant noodles.
However, some analysts believe that Tata Consumer has been looking to widen its presence in the food and beverages market in India by taking a shot at new categories either through organic or inorganic initiatives.
“Tata Consumer has been aiming for a wider set of brands in the last one year,” says G Chokkalingam, founder, Equinomics Research & Advisory.
“The company was talking to Bisleri. There were reports of interest in the south-based Aachi Masala and snacks major Haldiram, though the company denied the latter. When viewed from that lens, the company’s interest in Capital Foods is not misplaced. But there are strong incumbents in the instant noodles market,” he says.
Tata Consumer will have a tough fight ahead.