Coca-Cola Company will offload 40% in its wholly-owned Indian bottling arm, Hindustan Coca-Cola Beverages (HCCB), to Jubilant Bhartia Group for ₹12,500 crore ($1.47 billion). The deal underscores a shift in the India strategy of the world’s largest beverage maker and paves the way for HCCB’s potential local listing.
The companies made the announcement in separate statements on Wednesday. Neither party formally disclosed any financial details of the transaction.
The deal is the biggest by Jubilant Bhartia, promoter of the pizza-to-pharma conglomerate that has exclusive franchise rights for Domino’s Pizza. India’s largest foods services brand is operated by Jubilant Foodworks. The group will be acquiring stake in HCCB through its entity, Jubilant Beverages. “Jubilant Bhartia Group will bring invaluable experience and insights to our business as we continue to grow our presence in India,” said Henrique Braun, president of international development for Coca-Cola.
It is not yet known if Domino’s Pizza, with which PepsiCo is aligned as exclusive beverage partner in India across 2,000 outlets, will switch to Coca-Cola. “Boards of all three companies will take a call on this. There is no final decision on this yet,” said an executive directly involved in the talks.
‘Accelerating Coca-Cola system’
Domino’s, however, has a long-standing exclusive partnership with Coca-Cola in many world markets.
ET first reported on November 12 that the Bhartias were in advanced negotiations with Goldman Sachs for a partnership for the proposed acquisition. ET was also first to report on September 19 that the Bhartias were frontrunners for the HCCB stake and reported in its October 21 edition that they were in talks to raise funds for the deal.
HCCB has presence across more than 2.3 million retailers and over 2,300 distributors, according to a company statement. It operates 13 factories and manufactures and sells Coca-Cola, Thums Up, Sprite and Limca aerated drinks, Minute Maid and Maaza juice brands, Kinley and Dasani water, and Schweppes soda.
Growth market
Sanket Ray, president of the Coca-Cola India & Southwest Asia operating unit, said, “Jubilant brings decades of rich experience that will help accelerate the Coca-Cola system, enabling us to win in the market and provide greater value to local communities and consumers.”
India is Coca-Cola’s fifth-largest market by volume sales and has been identified as a crucial growth market for the US beverage giant, given the country’s low per capita consumption of packaged soft drinks, presenting significant growth headway.
The company is adopting an asset light strategy globally. Rival PepsiCo too has outsourced its entire bottling operations in India to entrepreneur Ravi Jaipuria-owned Varun Beverages.
Shyam S Bhartia, founder and chairman, and Hari S Bhartia, founder and co-chairman of the Jubilant Bhartia Group, said, “India is one of the largest and fastest-growing beverage markets globally and a key focus within the Coca-Cola ecosystem. Our deep understanding of the Indian market, combined with Coca-Cola Company’s global perspective, will further enhance HCCB’s value and accelerate its growth trajectory.”
Goldman Sachs has agreed to finance the special purchase vehicle created for HCCB’s stake and will be partnering the Bhartias.
The Bhartia family did not want to overleverage itself, said executives aware of the developments. Goldman Sachs declined to comment.
The family had been in talks with alternative asset managers including Bain Credit, Apollo Global Management, Ares Management, TPG Capital and GIC of Singapore, along with domestic mutual funds and foreign banks, to raise over $1 billion for the acquisition.
HCCB chief executive Juan Pablo Rodriguez said the strategic investment represents an important milestone in the company’s journey. “We (will) continue delivering exceptional value to our stakeholders while driving innovation and sustainable progress,” he said.
Distribution scale
Jubilant Foodworks has exclusive franchise rights for Dunkin’ Donuts and Popeyes in India and a few other geographies. In 2019, Jubilant Foodworks ventured into the Chinese fast casual segment with its own brand, Hong’s Kitchen. Other sectors the group operates in include pharmaceuticals, contract research and development services, proprietary drugs, agri-products and consulting in aerospace and oilfield services.
The HCCB deal is subject to regulatory approval. Rothschild & Co acted as exclusive financial adviser to Coca-Cola Company, while Jubilant Bhartia was advised by Morgan Stanley as exclusive financial advisor and Shardul Amarchand Mangaldas & Co as legal counsel.
HCCB reported a 9.2% increase in FY24 revenue to Rs 14,021 crore, with its net profit surging 247% to Rs 2,808.3 crore as it leveraged distribution scale in new markets, including tier II-III locations and maintained pricing. The company, which operates 13 factories in India, produces and sells 37 different products in eight categories, including soft drinks, juices, water, energy drinks and sports drinks.
Coca-Cola India reported a 42% drop in FY24 consolidated profit to Rs 420.2 crore while revenue rose 4.2% to Rs 4,713.38 crore, according to Registrar of Companies filings.
Source: Economic Times