 "Tata Consumer Products shares increase by 4% on Haldiram buyout report")
Shares of Tata Consumer Products closed 4 per cent higher on Wednesday, following reports that the company was in talks with the promoters of Haldiram Snacks Foods Private Limited (HSFPL) to buy a majority stake in the snack maker.
Private equity major Bain Capital is also in talks to buy 10 per cent of the company, said a Reuters report.
The report added that the snack maker sought a $10 billion valuation, which made Tata Consumer balk. Tata Consumer shares closed Wednesday’s trade at Rs 870.90 apiece on the BSE.
In a statement to stock exchanges, Tata Consumer Products, however, said it was not in negotiations for an acquisition and added that it evaluates various strategic opportunities for growth and expansion of the business of the company on an ongoing basis. Bain Capital declined to comment. Haldiram denied that it was on sale.
The Haldiram companies are currently undergoing a reorganisation, which involves the demerger of the packaged foods business of both Noida-based Haldiram Snacks Private Limited (HSPL) and Haldiram Foods International Private Limited (HFIPL) – part of the Haldiram Nagpur group – into a newly incorporated HSFPL, wherein existing shareholders of HSPL and HFIPL would acquire 56 per cent and 44 per cent stake, respectively.
Following the reorganisation, HSFPL would house the entire packaged foods and ready-to-eat businesses of both Delhi-NCR and Nagpur-based Haldiram groups. The approval in this connection from the Competition Commission of India (CCI) was received in April, and the transaction is likely to take 12-18 months.
In March this year, a Haldiram executive told Business Standard that following the merger, the new entity would plan to launch an initial public offering. Avin Agrawal, director, Haldiram Foods had said the two businesses were being merged due to increased competition in the segment and it would be easier to fight off competition as a combined entity.
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“We don’t have a concrete dialogue going on for listing at this point. We are thinking about an IPO to explore the value within the organisation. Apart from that, we are open to listening to external investors and we are always welcome to suggestions,” Agrawal had said. “We are not looking to raise capital, just to get cash. If at all we raise capital, that would be to expand. But right now, whatever we are doing is with internal accruals.”
As of March 2022, while HSPL had a turnover of Rs 5,195 crore, HFIPL had sales of Rs 3,757 crore. The net profit of HSPL was Rs 341 crore, while that of HFIPL was Rs 366 crore.
A Crisil report on August 25 stated Haldiram Snacks Private Limited had healthy cash accruals of Rs 550-650 crore per annum. The company does not have any external borrowing and its liquidity is cushioned by the cash surplus of over Rs 400 crore as on March 31, 2023, the rating firm said. The cash accruals of the Nagpur-based entity were Rs 600-800 crore per annum; it had a cash surplus of over Rs 1,200 crore in the form of bank deposits and investments as of December 2022, Crisil stated.
The rating firm warned that large companies with deep pockets in the food segment -- such as Pepsi and Reliance Retail -- are increasing investment in the savoury snacks division, constraining the profitability of players like Haldiram. “Intense competition constrains the ability to pass on the increase in raw material prices. Therefore, players have to regularly innovate, introduce differentiators and refreshes, and build on their reach and distribution to sustain market share and profitability. While the group has been able to effectively compete and engage in competitive pricing, competition from organised and unorganised players persists,” it said.