Dabur and Jubilant eyes to buy stake in Coco Cola India

Day 27 of covering FMCG

Coco Cola plans to sell a portion of their wholly owned subsidiary bottling plant Hindustan Coca-Cola Beverages (HCCB).

But why ?

Lets understand the business model of Coco Cola.

So as of now Hindustan Coco Cola beverages is run by a group of executives in India but it is the wholly owned subsidiary of The Coco Cola company headquartered in Atlanta , USA . So this means the day to day activities are managed by local leaders . And if any some strategic decision happens they usually take the help from the parent company.

So basically for two reasons they are raising money, firstly they want to expand more and They need support from major corporations to focus on other tasks. This will add strength to their operations in Indian Markets. And third they can focus on their core business like brand management, marketing, and product innovation rather than managing bottling operations.

So two of India’s biggest FMCG companies bid for this stake . First is the Burman family of Dabur and second the Bhartiya family of Jubilant , they bid close to $1.3-1.4 billion for 40 percent stake in the bottling plant of HCCB India. Means the potential deal values HCCB at ₹ 3.61 bn

The interest in the deal has several factors, first the slowdown of FMCG market and the continuous growing of the soft drink market in India, makes the deal interesting. This growth along with different other parameters such as increasing rural electrification and more people dining out, has made the soft drink category attractive to investors.

Both the company has synergies related to soft drink- as Bhartiyas of Jubilant operates quick service restaurant like Dominos , Dunkin Donuts and Popeyes in India . While Dabur owns the Real Juice brand. By acquiring the stake in HCCB they will get the access to big brands such as Coke, Sprite and Thumps up and benefit from increased capacity and distribution.

Research and analytics firm NielsenIQ said in its quarterly FMCG (fast-moving consumer goods) report that soft drinks grew at twice the rate of the overall FMCG sector in the April-June quarter, growing 9.2% by volumes, riding on an intense heatwave.

The fizz is here to stay, attracting significant financial interest.

Three of the most important components of investing- Knowledge , Courage and Patience - Vijay kedia

Thank you for reading

Mohit Jain