Bhartias leads race for Coca-Cola bottler Hindustan Coca-Cola Beverages, signs exclusivity deal to buy up to 40% stake for $1.4 billion

The promoters of the Bhartia Group jubilant have emerged as favourites for a participation in Coca-colaIndia’s bottling arm, enhancing an offering from the Burmese of Dabur as they increase their bet on the country’s changing consumption patterns and rising disposable incomes, people familiar with the matter said. Brothers Shyam and Hari Bhartia are the promoters of the diversified group that spans from pizza to pharmacies.

They recently signed an exclusivity agreement with Coca-Cola to negotiate the purchase of a significant minority stake of up to 40% in Coca-Cola Hindustan Beverages (HCCB) for Rs 10,800-12,000 crore ($1.3-1.4 billion), as the Atlanta-based beverage company looks to replicate its rival’s “asset-light” value-unlocking initiative. PepsiCosaid the people cited above. Coca-Cola plans to list HCCB and this is seen as a precursor to that, helping in price discovery.

PepsiCo has outsourced its bottling operations to a company owned by billionaire businessman Ravi Jaipuria. Varun Drinkswhose value has almost quadrupled since May 2022.

Bhartias did not get better conditions
On September 4, ET was the first to report that the Bhartias and Burmans had submitted firm bids after months of due diligence, valuing the wholly-owned Coca-Cola subsidiary at ₹27,000-30,000 crore ($3.21-3.61 billion). The final bids were submitted in London earlier this month.Coca-Cola, the Bhartias and Burman’s family office did not respond to inquiries. The Bhartias are said to have offered Coca-Cola better terms. If the two sides fail to agree on a sale within the stipulated time frame, talks may be extended or negotiations may be initiated with other parties. Coca-Cola has been working for months with its adviser Rothschild to find a buyer.

“These final negotiations will reveal the granular details of the potential deal – the deal structure, terms and other business details,” one of the executives quoted as saying. “Coca-Cola has been insisting on ‘generational capital’, which is why it has tapped mainly family offices and not private equity funds. They are considering a long-term partnership before listing the company.”

Several family offices, including those of Sunil Bharti Mittal, Azim PremjiShiv Nadar and the Parekh family of Pidilite were selected, as well as promoters from Asian Paints. In the end, only two submitted binding bids.

The Bhartias are expected to channel the investment through their family office and not through the quick-service restaurant chains they operate, as that would require involving their global headquarters, the executive said.

Jubilant Food Factory Ltd (JFL), India’s largest food service company, holds the exclusive franchise of Domino’s Pizza, Dunkin’ Donuts and Popeyes in India. In addition, the company is a Domino’s franchisee in five other markets in Asia and has acquired Coffy, a leading coffee retailer in Turkey. In 2019, JFL ventured into the Chinese fast casual food segment with its own brand Hong’s Kitchen.

Besides food, the group has interests in pharmaceuticals, contract research and development, agricultural products, high-performance polymers and oilfield services. The Bhartias also invest in their personal capacity.

According to information on its website, the Jubilant Bhartia Group has four key companies: Jubilant Pharmova, Jubilant Ingrevia, Jubilant FoodWorks and Jubilant Industries.

HCCB operates bottling plants in South and West India and has 16 factories serving 2.5 million retailers in 12 states through 3,500 distributors in 236 districts. Through these units, it manufactures and sells 37 different products in eight categories.

In January, Coca-Cola announced it was making “strategic business transfers in India” by selling company-owned bottling operations in some regions (Rajasthan, Bihar, the Northeast and select areas of West Bengal) to local partners for a net gain of ₹2,420 crore ($290 million). Following the divestment, Coca-Cola’s bottling operations have been split evenly between HCCB and half a dozen franchisees that make and distribute Coke, Thums Up and Sprite soft drinks, Minute Maid and Maaza juices, as well as Kinley water. India is among the top five volume growth markets for the beverage giant.

But unlike FMCG categories such as tea, soap, toothpaste or biscuits, which have much higher sales volume, packaged beverages are among the lowest-penetrated categories in India, according to industry executives, and therefore have substantial growth runway as discretionary income rises. That is why Coca-Cola has been expecting a significant premium for HCCB, estimating the value at $4-5 billion, people with knowledge of the matter said.

In its latest published annual report for fiscal 2023, HCCB highlighted the changing dynamics and said it seeks to emerge as a “total beverage company.” The structural drivers of long-term growth such as rising disposable incomes and consumer awareness, low FMCG penetration levels, favourable demographics, increasing urbanisation and rising preference for trusted brands are firmly in place.

HCCB said it will “continue to focus on new opportunities such as e-commerce, food, pharmacy, etc. to grow organically and inorganically.”

To expand its presence and serve consumers in entry-level packaging segments such as 150ml Tetra, 200ml Returnable Glass Bottles (RGB) and 250ml PET, HCCB has expanded its presence through strategic investments in this segment across new lines, glass bottles and market execution.

Even as major FMCG categories have seen demand cool off due to slow revenue growth in mass segments, inflation and lower price-led growth combined with increased competition from regional and D2C brands, soft drinks have bucked the slowdown trend, according to multiple reports. Global research firm Kantar said in its FMCG Pulse report published in June that the average consumption of bottled soft drinks in Indian households has crossed an annual penetration of 50% by fiscal 2023-24.