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Ching's: Very Low Free Cash Flow, Very High Valuation

AltG's Principals, Poornima Vardhan and Taponeel Mukherjee, discussing rollup investment opportunities in India

By AltG Research On Behalf of Taponeel Mukherjee and Poornima Vardhan

Nestle's $1Billion Interest in General Atlantic-Controlled Ching's Secret Maker

The potential sale of Capital Food, the maker of Ching's Secret, has brought the focus back on the Indian FMCG brand market. However, the reported $1 billion (INR 8,000 Crore) valuation seems exceptionally high based on the company's recent performance.

What Is The Right Price?

Capital Food's FY 2021-22 revenue was INR 581 Crore, with an EBITDA of INR 13.3 Crore. Even assuming growth in revenue to INR 800 Crore and an EBITDA margin of 17%, the maximum valuation for the company should be in the range of INR 1100 to 1400 Crore. A strategic advantage premium of 30% may take it to INR 1820 Crore.

The ability to generate at least a 10-12% return on investment is crucial, especially with the current higher base interest rates. Therefore, the potential sale of Capital Food at a $1 billion valuation seems extremely rich based on its current financials.

How To Generate Returns In FMCG In India?

However, we see the FMCG brand space in India as an extremely attractive investment opportunity; we believe there is significant potential in rolling up high-quality FMCG brands in high-growth niches onto a Roll-Up platform. Asset-light distribution in both general and modern trade can help grow these brands to generate multi-billion dollar exits.


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