Tata Consumer Products Drops After Capital Foods, Organic India Deals

15 Jan 2024 , 03:00 PM

Tata Consumer Products witnessed a dip in its stock performance after finalizing definitive agreements to acquire a 100 percent stake in Capital Foods, the owner of Ching’s Secret and Smith & Jones, and Organic India in a phased manner.

As of 12:55 pm, Tata Consumer Products was trading at Rs 1,143.1, experiencing a 1.37% decline on the NSE compared to the previous session.

The enterprise value, assessed on a ‘no cash/no debt basis,’ for a complete acquisition of Capital Foods stands at Rs 5,100 crore. The acquisition involves upfront procurement of 75% of the equity shareholding, with the remaining 25% set to be acquired over the next three years.

Simultaneously, Tata Consumer Products inked definitive agreements to potentially acquire a 100% stake in Organic India, an organic brand encompassing food and beverages, herbal, and traditional supplements. The enterprise value for the complete acquisition of Organic India on a ‘no cash/no debt basis’ is Rs 1,900 crore.

The company disclosed that its board would convene on January 19 to deliberate on fundraising options through debt and equity, including rights issues.

Alok Shah of Ambit Capital expressed concerns over the recent acquisitions of Capital Foods and Organic India, anticipating a negative impact on the company’s return on equity (RoE) and return on capital employed (RoCE). He projected borrowing of Rs 5,000 crore against an immediate acquisition cost of Rs 5,725 crore and a cash balance of Rs 1,500 crore.

In a note to investors, Shah stated, ‘This (borrowing) will be arranged via rights issue too which would lead to higher equity base, impacting return ratios.’ Such a scenario could result in a net profit cut of 10 percent in FY26 and a RoCE decline of 350-400 basis points.

Despite these challenges, the FMCG player’s share price surged by almost 20% over the past month. In comparison, the Nifty 50 index experienced an approximately 2.8% gain during the same period.

At 3 PM, the shares were trading at Rs 1151, 0.65% low from previous close.