In-depth analysis of mergers and acquisitions

tata consumer goods: Tata Consumer Products Ltd. recently announced the acquisition of Capital Foods and Organic India for a cumulative total of ₹7,000 crore. It announced a ₹3,500 crore rights issue after seeking board approval to fund the acquisition.

The acquisition will allow the company to move beyond commodities and into the fast-growing, high-margin, value-added food segment, according to Suni D’Souza’s comments to ET, MD and CEO.

Moreover, the stock has quintupled its share price over the past five years, delivering a return of 428%. So what impact will these new acquisition efforts have on your future business prospects? Can the strong performance continue in the future? So, let’s dig deep to find the answer.

Tata Consumer Business Unit

Tata Consumer Products Ltd., one of the premier companies of the Tata Group, is active in the domestic and international food and beverage industries. It is the second largest tea company in the world with a strong market presence and market leadership in various segments.

Besides South Asia, mainly India, it is also found in several other regions such as North America, Australia, Europe, Middle East and Africa.

In India, it has reached 200 million households. About 24% of innovations are focused on health and wellness. In FY23, the company launched 34 new products in India and other regions.

During fiscal FY23, the company increased direct distribution by 15%. Tata Consumer now has 1.5 million stores across India, more than double the number two years ago.

Source: Annual Report (FY23)

Let’s take a look at some of the business segments in which the company operates.

brand business

1. Packaged beverages

2. Food/packaged food

• Salt, Pantry Spine (Tata Sampann)
• Breakfast cereals, snacks (Tata Soulfull)
• RTE/RTC (Tata Samphan Yamside)
• Others (Protein – Tata Simply Better, Tata GoFit)

3. Liquid beverage/instant beverage (NourishCo)

Non-branded business

• tata coffee india
• tata coffee vietnam
• Tata Tea Extract Ltd.

Joint Ventures and Affiliates

• Tata Starbucks (50:50 Jv)
• Amalgamated Farms Private Limited (Appl)
• Kanan Devan Hills Plantations Company Private Limited (Kdhp)

Recent acquisitions and their implications

Capital Foods and Organic India

According to Sunil D’Souza, Organic India will give the ₹14,000-crore producer of Tata Tea, Tetley and Salt access to its pharmaceutical distribution network for the first time.

Additionally, TCPL and Capital Foods founder Ajay Gupta have signed an agreement to continue advising the fast-moving consumer goods (FMCG) business.

Organic India sells teas, supplements, organic infusions and other health products, while the ₹5,100-crore Capital Foods owns popular brands such as Smith & Jones and Ching’s Secret. For Organic India, TCPL will pay ₹1,900 crore.

Capital Foods offers a portfolio of products for at-home consumption in rapidly expanding categories under its own platform brands. In categories such as blended masalas, soups, chutneys and sauces, Ching’s Secret dominates the Desi Chinese products market. Smith & Jones helps you prepare Italian and other Western dishes at home.

TCPL, which has a cash reserve of ₹3,000 crore, has repeatedly made it clear that it is looking for strong food and beverage (F&B) brands but will not overpay for acquisitions.

Of the 3.9 million outlets in TCPL’s distribution footprint, 1.5 million provide direct service. With a market share of 400,000 for Capital Foods and 24,000 for Organic India, both the acquisitions are likely to grow in the near future through wider distribution.

Nourishko

NourishCo aims to meet consumer needs for energy hydration and wellness by providing the most relevant and meaningful hydration solutions in the non-carbonated ready-to-drink segment in India.

Its liquid beverages division, NourishCo, has been on a strong growth trajectory since its acquisition by Tata Consumer in May 2020. The business achieved significant growth on the topline despite the pandemic and the high prominence of the ‘Out of Home’ channel.

TATACONS’ strategy to purchase the remaining stake in the NourishCo JV from PepsiCo is paying off as the company rapidly expands its distribution network, leverages the strengths of its current portfolio and introduces cutting-edge products in the ready-to-drink (RTD) segment. ) and non-carbonated (NCD) beverages segment.

According to the Indian Council for Research in International Economic Relations (ICRIER), the non-alcoholic beverages market is expected to register a CAGR of 8.7% during CY19-30, from INR671b in CY19 to INR1.47t. With the well-known “Tata” brand, TATACONS’ entry into this market is expected to be revolutionary, especially considering the rapid growth of the industry.

This can be seen through strong topline growth of 80% from ₹621 crores in FY23 vs ₹344 crores in FY21.

The segment is growing robustly, driven by strong market acceptance, synergies from deep distribution networks in other product categories and premium quality offerings.

The business handles both manufacturing and distribution using an asset-light model. We continue to allocate resources primarily to branding, marketing and sales oversight.

Source: Annual Report (FY23)

Merger of Tata Coffee and Tata Consumer

Tata Coffee and Tata Consumer Products Ltd. were merged on January 1, 2024. As per the plan, TCPL Beverages & Foods, a wholly-owned subsidiary of TCPL, will be merged with Tata Coffee’s plantation business. TCPL will issue one share to existing shareholders for every 22 shares held by Tata Coffee.

The company’s management proposed the merger to create synergies and increase efficiency by streamlining its operations and management structure.

Tata Coffee currently operates a global consumer goods business offering a range of food and beverage products. TCL and its affiliates were primarily engaged in instant coffee, branded coffee brewing and farm operations.

finance

Value in Crores

The company’s revenue grew 11% to ₹13,783 crore from fiscal 2022 to fiscal 2023. Over four years, the company’s revenue has grown at a 3-year CAGR of 12%.

The company’s profits grew by ₹30-₹1,320 per cent from FY2022 to FY2023. Over four years, the company’s net income has grown at a three-year CAGR of 9.1%.

Now, if we look at the revenue of specific segments in FY2023, the Indian Beverages segment is leading with around 37% contribution to the consolidated revenue. If so, it can be seen that the acquisition of Nurico is yielding results.

Well, so far we have seen how the company has seen solid growth thanks to acquisitions and its plans to use them to enter new segments. So, could the acquisition of Capital Goods and Organic India help the company become India’s leading FMCG company? Let us know in the comments below.

Written by Nalin Surya

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