What led to the change in strategy?
Experts say there is a growing trend among consumer goods giants to divest businesses to optimize balance sheets, become asset-light and focus on core brands and business models. Coca-Cola India’s interest in listing HCCB comes after rival PepsiCo’s bottling business Varun Beverages was listed on the local stock exchange, bringing huge value to the Jaipuria family.
Unlike Pepsi, Coca-Cola owns its own bottling franchise, just like other multinationals such as consumer goods giant Whirlpool, ball bearing specialist Timken and tobacco giant British American Tobacco, which are keen to take advantage of the valuations Indian investors give to well-run multinationals. Varun Beverages has a market valuation of ₹2.09 trillion. Hindustan Unilever and Colgate-Palmolive (India) are good examples of multinational companies listed in India.
Coca-Cola’s move is viewed as a strategic attempt to achieve significant benefits, including financial gains, risk mitigation, and additional exit opportunities. Economic Times first reported HCCB’s listing plans in May.
How does the parent company benefit?
Desai & Diwanji partner Alpana Srivastava said that through such moves, the parent company can reduce the risks associated with the bottling company, including raw material fluctuations, regulatory changes and local market conditions. She said that while the spin-off of bottling subsidiaries is more common in the beverage industry, other fast-moving consumer goods and retail companies may explore similar strategies to optimize their balance sheets in the current environment.
Earlier this year, HCCB announced it would transfer its bottling business in three northern Indian regions to other regions to simplify the supply chain in the region. However, the bottling company declined to comment on its IPO plans.
As part of the transition, the Rajasthan market will be owned and operated by Kandhari Global Beverages, which operates in Delhi, Himachal Pradesh, Haryana, Punjab, Chandigarh, Jammu and Kashmir and parts of Ladakh. The Bihar market will be owned and operated by SLMG Beverages Pvt Ltd, which has bottling operations in Uttarakhand, parts of Uttar Pradesh, Madhya Pradesh and Bihar. The Northeastern market and parts of West Bengal will be owned and operated by Moon Beverages Pvt Ltd, which operates in Delhi and parts of Uttar Pradesh.
What other factors have led to the emergence of such derivative products?
Srivastava explained that in addition to providing liquidity to bottlers, listings can also provide tax benefits, such as lower capital gains taxes or more favorable transfer pricing rules, and optimize the overall tax burden of the parent and subsidiary companies. Listings may enable more accurate valuations of both companies based on their respective growth capabilities, risk profiles, and capital intensity.
Against this backdrop, companies are looking to take advantage of the bull run in the stock market and create more value for shareholders by listing their manufacturing subsidiaries. Devangshu Dutta, founder of management consulting firm Third Eyesight, said listing enables these companies to raise more funds, which can be used to strengthen their market presence and reduce debt. He said the core value creators of companies such as Coca-Cola and PepsiCo are branding and marketing, not manufacturing.
In April this year, private equity firm Lighthouse Funds invested ₹7,000 crore investment in Parsons Nutritionals, a contract manufacturer specialising in packaged food, beverages and personal care products, highlights investor interest in the sector. Other co-investors include World Bank Group member International Finance Corporation, Evolvence India, HDFC AMC’s fund of funds and various family offices.
However, there may also be legal considerations. While there is an exclusive contract, the bottler may have partnerships with other companies in its distribution portfolio that may need to be reviewed and renegotiated. There may be regulatory compliance and other anti-competitive considerations when such a large entity is involved.
Other examples of such initiatives
While fewer bottling companies are listed in India, the practice is more common globally. Coca-Cola has listed most of its bottling subsidiaries in other global markets such as North America and Europe.
While there is no equity stake between PepsiCo and Varun Beverages, Varun Beverages has an exclusive agreement to bottle, use the trademark, distribute, market and sell PepsiCo products in India. The beverage giant benefits from royalties and licensing fees.
Varun Beverages’ revenue grew 22% to ₹16,400 crore and profit increased to ₹2,056 crore ₹1,497 crore. As of Friday’s close, the bottled water maker’s shares had risen nearly 30% to ₹It has reached 645.20 so far this year.
Dhruv Chatterjee, partner at Saraf and Partners, said any potential listing of HCCB could see Coca-Cola India exit in a phased manner by managing the local business, monetizing its stake and participating in future licensing fee and/or royalty arrangements. He added that similar divestments were also seen in the retail and fast-moving consumer goods categories. Coca-Cola India did not respond to requests for comment. MintRequest for comment.
Ravikumar Distilleries is a prime example of a listed manufacturing company that, in addition to producing and selling its own alcohol products, has also entered into partnerships with alcohol companies Radico Khaitan, Shashi Distilleries and John Distilleries. Bengal Beverages is an unlisted bottling company that, under license from Coca-Cola, produces and distributes non-alcoholic beverage brands in categories such as carbonated soft drinks, juices and water.
What kind of contract exists between the bottler and the parent company?
Many bottling plants are usually set up as joint ventures between the company and local partners. The bottling plants purchase concentrates from the company. According to a person familiar with the matter who wished to remain anonymous, about 14-15% of the concentrate cost goes to the bottling plants, which translates into revenue for the brand. The company uses part of this revenue for marketing campaigns targeting mass audiences through television, radio and newspapers.
Depending on the terms of the contract, the bottler may be required to spend a portion of its revenue on outdoor marketing, such as billboards, flyers, social media, and events. The arrangement between the bottler and the company may be a pure bottling arrangement (or contract manufacturing) or a bottling and distribution arrangement in which the bottler is also responsible for marketing, branding, and last-mile distribution.
How is the carbonated beverage market performing?
Market research firm Statista estimates that the Indian carbonated beverage market revenue is about $2.4 billion and is expected to grow at an annual rate of 6.98% over the next four years. The consumption of carbonated beverages in homes and other out-of-home locations is likely to be about 4.2 billion litres this year.
In 2022, Parle Agro’s brands Appy Fizz and Coca-Cola each commanded 31% of the market share, followed by Fanta, Pepsi, 7UP and Sprite. Other brands such as Reliance-backed Campa Cola are expected to challenge the dominance of these companies.
Before Reliance acquired Campa ₹The soft drink, valued at Rs 22 crore in 2022, was launched in the 1970s by the Pure Drinks Group, which launched and distributed Coca-Cola in 1949 before the American company exited India in 1977.
Pure Drinks and Campa Beverages subsequently launched Campa Cola, filling the gap left by foreign soft drink companies in India. However, Coca-Cola and Pepsi re-entered the Indian market in the 1990s, stifling local competition.
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