Tata Consumer shares dip 2% after acquiring Capital Foods, Organic India

Tata Consumer shares dip: The shares of Tata Consumer Products Ltd (TCPL) declined 2.1 per cent on Monday, January 15, 2024, hitting an intraday low of Rs 1,134.75 on the NSE, after the company announced the acquisition of two prominent entities, Capital Foods and Organic India.

Tata's ambitious acquisitions

TCPL confirmed the acquisition of 100 per cent equity shares of Capital Foods, renowned for brands like Ching’s Secret and Smith & Jones, and Organic India, a firm specialising in organic herbal teas and health foods. While the Capital Foods acquisition will occur in phases, TCPL will obtain 100 per cent ownership of Organic India in an all-cash deal.

Financial details of the deals

TCPL is set to pay an enterprise value of Rs 5,100 crore for the 100 per cent stake in Capital Foods, with 75 per cent of the equity shareholding acquired upfront and the remaining 25 per cent to be obtained over the next three years. The acquisition of Organic India, with an estimated turnover of Rs 360-370 crore for FY24, comes for Rs 1,900 crore, along with an additional earnout linked to the company's FY26 audited financials.

Market response

The market response to these strategic moves was a 2.1 per cent decline in TCPL's share prices. Analysts, including brokerage firm Motilal Oswal, expressed positive views on the acquisitions, stating that these initiatives align with TCPL's strategy to expand its product portfolio and addressable market. However, the market seems to be cautious, leading to the observed decline in share prices.

Motilal Oswal said the market leadership of Capital Foods in the Desi Chinese segment and the strong position of Organic India in the health and wellness sector. The acquisitions are expected to contribute significantly to TCPL's incremental total addressable market (TAM), both in India and internationally.

To fund these acquisitions, TCPL plans to utilise internal cash reserves and bridge financing. The company's board is scheduled to meet on January 19 to consider fundraising proposals through debt issues and equity issuances.

Motilal Oswal reiterated a positive outlook, anticipating an EPS accretive impact from the acquisitions starting the third year of operations. They expect a CAGR of 10 per cent/14 per cent/22 per cent in revenue/EBITDA/PAT over FY23-26 and reaffirmed a buy call on TCPL's stock.