ITC shares gain 5% as Co to acquire spices major Sunrise Foods for Rs 2K cr

The proposed acquisition is aligned with ITC's strategy to rapidly scale up its FMCG businesses in a profitable manner, the company said.

Fast-moving consumer goods (FMCG) major ITC shares surged as much as 4.6 per cent to Rs 194.95 apiece on the BSE on Tuesday after the company announced it had entered into an agreement with the spice major Sunrise Foods to acquire a 100 per cent stake in the company. 

"ITC Limited has entered into a Share Purchase Agreement (SPA) on May 23, 2020 to acquire 100% of the equity share capital of Sunrise Foods Private Limited (SFPL), a company primarily engaged in the business of spices under the trademark ‘Sunrise’, subject to fulfilment of various terms and conditions as specified in the SPA," the company said in its press release.

The share-purchase agreement was completed after the lockdown was enforced and the final deal is likely to be signed soon. ITC didn’t comment on the deal size, but sources estimated it at close to Rs 2,000 crore, according to this Business Standard report.

The proposed acquisition is aligned with ITC’s strategy to rapidly scale up its FMCG businesses in a profitable manner, leveraging its institutional strengths viz. deep consumer insight, a deep and wide distribution network, agri-commodity sourcing expertise, cuisine knowledge, strong rural linkages and packaging know-how, ITC said. 

Sunrise Foods clocked a turnover of around Rs 600 crore last year. However, there would be a premium on the 70-year Sunrise brand.

Commenting on the deal, analysts at Motilal Oswal Financial Services (MOFSL) note that the Sunrise acquisition has the potential to add nearly 7 per cent to ITC's FMCG business. "ITC is already present in the branded spice category through its ‘Aashirvaad’ brand. However, this acquisition would significantly scale up its spices’ business. The company would be able to generate synergies on sourcing and distribution due to its scale and pan-India presence through its FMCG-Others segment," they wrote in a note dated May 24.

The brokerage further said that ITC’s pace of acquisitions has picked up in recent years and it expects it to continue in the future as well. It has maintained a "neutral" rating on the stock with the target price of Rs 192. 

ICICI Securities, too, feels that the acquisition of  Sunrise Food has the potential to strengthen ITC's packaged foods portfolio.

"The acquisition will help increase penetration of the Sunrise brand across the country while leveraging ITC’s wide distribution network. We believe pulses & spices categories are large and completely dominated by unbranded or semi branded products, which presents a big opportunity to shift consumer demand towards packaged food, specifically in current circumstances where consumers would be increasingly preferring packaged/branded food products over loose/semi branded ones," the brokerage said. 

It has "buy" rating on the stock with the target price of Rs 230.

At 09:46 am, the stock was trading 3.5 per cent higher at Rs 193 against over 1 per cent rise in the benchmark S&P BSE Sensex at 31,028 levels.