Tata Consumer Products has edged ahead of other suitors like ITC and is now the frontrunner in fray for a majority stake in Fabindia-backed organic herbal and Ayurvedic health products firm Organic India, multiple industry sources in the know told Moneycontrol.
"Tata Consumer wants to focus on the health and organic products segment and Organic India fits in with their investment thesis. The talks between both the parties are at an advanced stage," said one of the sources.
"The business is non-core to Fabindia and they want to unlock value. A player with the distribution strength of the Tata group can help to scale up Organic India," argued a second person.
A third person confirmed that discussions between Tata Consumer, Organic India and its investors had progressed to the last leg. "Organic India is known for their range of herbal and green teas and this is an important segment for the Tatas as well, with Tata Tea premium the flagship brand of Tata Consumer."
In Organic India, Fab India holds 64 percent stake, 17 percent is with the founder promoters, 15 percent with Premji Invest and the rest is owned by employees and the ESPS trust, a fourth person told Moneycontrol. He added that the ongoing deal talks may or may not necessarily fructify into an eventual transaction.
None of the sources agreed to be identified. Moneycontrol could not independently ascertain the deal valuations or the contours of the proposed majority stake sale.
In response to an email query from Moneycontrol, a Fabindia spokesperson said: "We have been in conversation with several potential investors as some of our shareholders and investors have been looking for an exit. However, at the moment, we don't have anything concrete in this regard. "
When contacted, Tata Consumer Products said it "does not comment on market speculation". A query sent to Organic India was left unanswered at the time of publishing this article.
Tata Consumer on the prowl
Tata Consumer Products was weighing the big-bang acquisition of drinking water brand Bisleri from the Ramesh Chauhan group, but the deal was called off in March.
According to reports, the firm was linked with a potential transaction with the Haldiram Group and was also seen as the lead contender to acquire private equity firm General Atlantic-backed Capital Foods, the parent company of the instant noodles and condiments brand Chings Secret.
At the 60th AGM of Tata Consumer Products, Tata Group chief N Chandrasekaran said: "We're expanding both the beverages and food businesses. So there's a lot of focus in these businesses, we got to scale them. And also we are investing in R&D and innovation. We are looking at new categories and looking at acquisition opportunities," he said.
Read: Tata Consumer share price gains as FMCG firm sets sight on acquisitions in F&B space
The company's stock price has risen a little above 13 percent in the last six months.
Organic India: Challenges and Revival
Organic India works with thousands of small family farmers and is present in the categories such as teas and infusions, herbal supplements, staples and packaged foods and personal care. The firm also offers a wellness and detox programme, says its website.
According to the 2022-23 annual report of Organic India, its revenue declined by 15 percent on standalone and 22 percent on consolidated bases and the company reported a loss of Rs 44.35 crore on standalone and Rs 88.06 crore on consolidated bases.
The annual report highlighted the tough business environment for the firm. "The year 2022-23 turned out to be a year full of disruptions both internal and external, which adversely impacted the company and its performance. With the departure of the erstwhile managing director, along with several other key personnel both in India and in the US, impacted the overall business adversely, compelling to divert entire energies and focus to sustain the operations and the company. With the cessation of the equivalency of the USDA Organic with Indian Organic Standards, the export business was badly hit," it said.
For around three months, exports were not permitted, and subsequently it tool a toll on the topline. The company took aggressive marketing and inventory correction drive across all channels with gentle inventory push. The retail channel underperformed, resulting in an overall decline in revenue, according to the report.
It also elaborated on the steps taken to revive the business. With Balram Singh taking over as managing director and Sudhir Langer taking over as the chief executive officer, the business started to gain traction, it said.
"The managing director continued to host weekly, fortnightly and monthly review meetings with the senior management team. Immediate corrective actions and continued discussions and interventions along with the front-end team, including stringent cost optimisation measures in internal processes turned out to be effective. The business slowly revamped and regained its pace," the report said.
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