ITC stock price rises on news of buying out health food maker Sproutlife

The cigarette maker said it plans to acquire 100 percent of Sproutlife in multiple tranches.

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ITC, the breakout stock of last year, saw some buying on January 18 after the company announced acquisition of Sproutlife Foods Private Limited, the makers of Yoga Bar, a health food.

The cigarettes-to-hotel conglomerate said it plans to acquire 100 percent of Sproutlife in multiple tranches. It will pick up 47.5 percent in the company in two tranches for investments of Rs 175 crore and Rs 80 crore by 2025.

The price for the rest of the stake is yet to be fixed. It will be determined based on pre-agreed valuation criteria, within three months from the date on which Sproutlife provides the audited financial statements for the financial year ending on March 31, 2026.

Suhasini Sampath, co-founder of Sproutlife, said the company deals in products offering high gross margins. Its gross margin is in the range of 40-50 percent, he said.

ITC has been criticised time and again for comparatively lower margins for its FMCG portfolio. The addition of a high-margin product to its portfolio will definitely be a help.

Sampath said he was excited about having access to ITC’s strong distribution network. “ITC will help us in improving logistics,” he told CNBC-TV18.

In the fiscal year 2022, Sproutlife made a sale of Rs 68 crore – up from Rs 32 crore and Rs 39 crore in the previous two years respectively. Sampath estimated that Yoga Bar sales will cross Rs 100 crore in FY23.

The stock hit a high of Rs 336.50 on January 18, up over 1 percent from previous close. However, it saw some profit-booking at high levels but still traded up 0.6 percent at Rs 334.

In the F&O market, open interest for ITC reached the week’s high level, climbing 4 percent on January 18. Rising price and open interest means a bullish setup is emerging in a stock.

Analysts have a positive view on ITC. Bloomberg data shows 33 analysts have a ‘buy’ call on the stock with two assigning ‘hold’ ratings. The stock has failed to leave a mark so far this year and is flat. Its one year performance is still impressive at 51 percent.

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