Dabur and Jubilant owners bid for stake in HCCB, Coca-Cola’s Indian bottling subsidiary

He Burmese family of Debur and promoters of Jubilant Bhartias group is close to separately acquiring a 40% stake in Hindustan Coca-cola Drinks (HCCB) for between 10.8 and 12 billion rupees ($1.3 and $1.4 billion), executives familiar with the development said.

This values ​​Coca-Cola India’s wholly-owned bottling subsidiary at Rs 27,000-30,000 crore ($3.21-3.61 billion).

The two sides submitted bids over the weekend, the people said.

Parent company Coca-Cola Co. will decide whether the deal will involve one or two co-investors, or whether negotiations lead to the creation of a consortium of investors. A decision is likely to be made before the end of this fiscal year.

ET was the first to report on June 18 that Coca-Cola had sounded out a group of Indian companies and family offices of billionaire promoters to buy shares in HCCB, a division it eventually wants to take public to cash in on bullish domestic capital markets.

Those involved are said to include the family office of the Parekhs of Pidilite Industries and the promoter family of Asian paintingsalong with the Burmans and the Bhartias. Some of the people cited above indicated that the family offices of Kumar Mangalam Birla, Sunil Bharti Mittal and the tech billionaire Shiva Nadar They have also been approached. However, only the Burmans and the Bhartias are said to have attempted to bid for stakes. The cash-rich families are open to a structure that could even list their flagships. Debur India and Jubilant Foodworks (JFL) — join forces as co-investors to leverage synergies with their existing fast-moving consumer products (Consumer goods) and food bags.

Some independent bottlers are unhappy

JFL, India’s largest food service company, holds the exclusive franchise for Domino’s Pizza, Dunkin’ Donuts and Popeyes in India. The company is also a Domino’s franchisee in five other Asian markets and has acquired Coffy, a leading coffee retailer in Turkey.

Dabur also has a wide portfolio of food and beverages, as well as health-focused products.

However, talks to sell the stake have not been well received by some of the company’s existing independent bottlers, according to two executives with knowledge of the matter.

“While Coca-Cola is keen to tap the potential of packaged beverages in India, some independent bottlers feel that they should be offered an additional stake in HCCB and have contacted Coca-Cola management to express their displeasure,” one of the executives said. But Coca-Cola is looking for high-profile business partners to finance this large transaction, he said.

Spokespeople for Coca-Cola did not respond to queries. A spokesman for Jubilant’s family office declined to comment. The Burmans were not available for comment.

Wide footprint

Rival PepsiCo has unlocked value by outsourcing its bottling operations to a company owned by billionaire businessman Ravi Jaipuria. Varun DrinksCoca-Cola has continued to use HCCB to partially manage its local bottling business. With Varun Beverages’ share value more than tripling in the past two years, Coca-Cola wants to replicate the asset-light business model.

Ahead of the listing, the company is seeking like-minded “generational capital” for price discovery, one of the people said.

Unlike tea, soap, toothpaste or biscuits, which have a much higher sales volume, packaged beverages are among the least penetrated FMCG categories in India, an industry executive said, and hence have substantial scope for growth as the discretionary income of the Indian consumer class rises.

Coca-Cola is said to be hoping for a significant premium, which would value HCCB’s operations at between $4 billion and $5 billion. Current negotiations could collapse without a deal, the people cited above said.

Coca-Cola’s bottling operations are split evenly between HCCB and half a dozen franchisees who manufacture and distribute locally Coke, Thums Up and Sprite soft drinks, Minute Maid and Maaza juices, and Kinley water. India is among the top five growth markets by volume for the Atlanta-based beverage giant.

In January, Coca-Cola announced it was making “strategic business transfers in India” by selling its wholly-owned bottling operations in some regions (Rajasthan, Bihar, the northeast and select areas of West Bengal) to local partners for Rs 2.42 billion ($290 million). HCCB retained bottling operations in the south and west, and has 16 factories serving 2.5 million retailers through 3,500 distributors.

Data from business intelligence platform Tofler showed that HCCB reported a 40% year-on-year rise in revenue from operations to Rs 12,840 crore in FY23, up from Rs 9,147.74 crore. HCCB’s net profit for FY23 more than doubled to Rs 809.32 crore. Coca-Cola is yet to come out with figures for FY24.

Globally, the brand’s bottling is done through a combination of publicly traded and privately held companies. Its top five bottling partners worldwide together contributed 42% of its total unit case volume in 2022.

In a significant shift in strategy, Coca-Cola on June 30 this year shut down the group company Bottling Investments Group (BIG), under which the beverage company operated its bottling operations globally, as first reported by ET in its June 30 edition. Henrique Braun, president of international development at Coca-Cola, had said in an internal memo at the time that “the time is right to close BIG headquarters and oversee our remaining bottling investments in a more streamlined manner.” He had said that the evolution was aimed at further simplifying decision-making and strengthening capabilities across markets.

The strategic move also meant that Coca-Cola India, Nepal and Sri Lanka operations came under the company’s internal management, the announcement said.

Industry experts said the move advances Coca-Cola’s global strategy of gradually reducing asset-heavy bottling operations while intensifying focus on brand development, innovation and competitive strategy.