The Burman family of Dabur and promoters of Jubilant Group, the Bhartias, are separately closing in on a 40 percent stake in Hindustan Coca-Cola Beverages (HCCB) for INR 10,800-12,000 crore (USD 1.3-1.4 billion), said executives aware of the development.
This values Coca-Cola India’s wholly owned bottling subsidiary at INR 27,000-30,000 crore (USD 3.21-3.61 billion).
The two sides submitted bids over the weekend, said the people cited.
Parent Coca-Cola Co will decide if the deal will involve one or two co-investors, or if negotiations lead to creation of an investor consortium. A decision is likely by the end of this fiscal year.
ET was first to report on June 18 that Coca-Cola had sounded out a group of Indian business houses and family offices of billionaire promoters to buy into HCCB, an arm it eventually wants to take public to cash in on the bullish domestic capital markets.
Those tapped are said to include the family office of the Parekhs of Pidilite Industries and the promoter family of Asian Paints, along with the Burmans and Bhartias.
Some of the people cited earlier indicated that the family offices of Kumar Mangalam Birla, Sunil Bharti Mittal and tech billionaire Shiv Nadar were also approached. However, only the Burmans and the Bhartias are said to have sought to bid for stakes.
The cash-rich families are open to a structure that may even see their listed flagships — Dabur India and Jubilant Foodworks (JFL) — join forces as co-investors to leverage synergies with their existing fast moving consumer goods (FMCG) and food portfolios.
Some independent bottlers unhappy
JFL, India’s largest food services company, owns the exclusive franchise of Domino’s Pizza, Dunkin’ Donuts and Popeyes in India. Additionally, the company is Domino’s franchisee in five other markets across Asia and has acquired Coffy, a leading coffee retailer in Türkiye.
Dabur too has a wide portfolio of food and beverages as well as health-focused products.
Negotiations for the stake sale, however, have not gone down well with some of the company’s existing independent bottlers, according to two executives aware of the matter.
“While Coca-Cola wants to unlock the potential of packaged beverages in India, some of the independent bottlers are of the view that they should be offered the additional stake in HCCB, and have approached Coke’s management, expressing their displeasure,” said one of the executives. But Coke is looking at marquee business partners to fund this large transaction, he said.
Coca-Cola spokespersons didn’t respond to queries. A Jubilant family office spokesperson declined to comment. The Burmans were unavailable for comment.
Wide footprint
Rival PepsiCo has unlocked value by outsourcing its bottling operations to billionaire entrepreneur Ravi Jaipuria-owned Varun Beverages. Coca-Cola has continued to use HCCB to partially manage its local bottling business. With Varun Beverages’ stock more than tripling in value over the past two years, Coca-Cola wants to replicate the asset-light business model.
Ahead of the listing, it’s in the hunt for like-minded “generational capital” for price discovery, said one of the persons cited.
Unlike tea, soap, toothpaste or biscuits — that are much larger in sales volume — packaged beverages are among the lowest penetrated FMCG categories in India, said an industry executive, and, therefore, have a substantial growth runway as discretionary income of the Indian consumer class rises.
Coca-Cola is said to be thus expecting a significant premium, valuing HCCB’s operations at as much as USD 4-5 billion. Current negotiations may still fall through without a deal, said people cited above.
Coca-Cola’s bottling operations are split evenly between HCCB and half a dozen franchisees that manufacture and distribute fizzy drinks Coke, Thums Up and Sprite, juices Minute Maid and Maaza, as well as Kinley water locally. India is among the top five volume growth markets for the Atlanta-based beverage giant.
In January, Coca-Cola announced it was making “strategic business transfers in India” by selling off company-owned bottling operations in some regions — Rajasthan, Bihar, the North East and select areas of West Bengal — to local partners for INR 2,420 crore (USD 290 million). HCCB retained bottling operations in the south and west, and has 16 factories that cater to 2.5 million retailers via 3,500 distributors.
Data from business intelligence platform Tofler showed that HCCB reported a 40 percent year-on-year increase in revenue from operations to INR 12,840 crore in FY23, up from INR 9,147.74 crore. HCCB’s net profit for FY23 increased more than twofold to INR 809.32 crore. Coca-Cola is yet to file numbers for FY24.
Globally, the brand’s bottling is a mix of listed and privately held companies. Its top five bottling partners worldwide together contributed 42 percent to its total unit case volume in 2022.
In a significant shift in strategy, Coke shut down group company Bottling Investments Group (BIG) on June 30 this year, under which the beverage company operated its bottling operations globally, as first reported by ET in its June 30 edition. Henrique Braun, Coca-Cola president, international development, had said in an internal note at the time that “the timing is right to sunset BIG’s headquarters and to oversee our remaining bottling investments in a more streamlined way.” He had said that the evolution was aimed to further simplify decision-making and strengthen capabilities across all markets.
The strategic move also meant that operations of Coca-Cola India, Nepal and Sri Lanka were being brought under the company’s internal board, according to the announcement.
Industry insiders said the move takes forward Coca-Cola’s global strategy gradually reducing asset-heavy bottling operations, while stepping up focus on brand building, innovation and competitive strategy.
