Tata Consumer to raise ₹6,500 cr to fund 2 major acquisitions

Soon after announcing two major acquisitions in the FMCG space, the board of Tata Group company Tata Consumer Products Ltd today approved the raising of ₹6,500 crore by issuing commercial papers and equity shares.

The board of directors at its meeting today approved the raising of funds through the issuance and allotment of commercial papers, for an amount not exceeding ₹3,500 crore.

The funds, says the company, will be used for "bridge funding" to facilitate the payment of consideration for the proposed acquisition of stakes in Capital Foods Private Ltd and Organic India Private Ltd.

The company will also raise funds by issuing equity shares at the face value ₹1 each through a "rights issue" for ₹3,000 crore to the eligible equity shareholders as of the record date.

The company says for giving effect to the rights issue, the detailed terms, including rights entitlement ratio, record date, timing and terms of payment, will be determined in due course by its board or the ‘capital raising committee’.

Amid the development, Tata Consumer Products shares surged as high as 1.5% to an intra-day high of ₹1,165 on the BSE. At the current share price ₹1,153.20, the Tata Consumer share is trading 5.1% down against a 52-week high touched on January 15, 2023.

Tata Consumer last week announced to buy a 75% stake in Capital Foods for ₹5,100 crore and a 100% stake in Organic Foods at a combined value of ₹1,900 crore. TCPL expects to close the transaction in Q4FY2024 and anticipates to complete operational integration in H1FY2025.

The acquisition is set to complement TCPL’s existing product portfolio and will help fill the gaps in fast-growing branded categories such as sauces, condiments, and healthy foods/beverages, say analysts.

"Both acquired companies are high-margin entities (gross margins of 50-55% vs. TCPL’s consolidated gross margins of 43%), with a huge potential to scale up fast by leveraging TCPL’s strong distribution and global presence," says an analysis by BNP Paribas-led brokerage Sharekhan.

TCPL’s acquisition of a 75% stake in Capital Foods at an enterprise value of Rs 5,100 crore is valued at 6.8x its FY24E net sales, while Organic India’s acquisition at an enterprise value of ₹1,900 crore is valued at 5.2x FY24E net sales.

Tata Consumer will announce its October-December 2023 quarter financial results on February 7, 2023. In Q2 FY24, its net profit stood at ₹267.79 crore, up from ₹229.52 crore in the year-ago period, while the revenue surged to ₹2,359.59 crore from ₹2,130.78 crore in the year-ago period.

Tata Consumer Products' current CEO and MD, Sunil D'Souza, who joined the company during the peak of Covid in April 2020, in Fortune India magazine's October 2023 issue, had said his ambition was to make TCPL India’s premier FMCG company. He said he believed the Tata brand name gave him an imminent upper hand in attracting the best of talent as well as retailers and consumers.