Coca-Cola mulls sale of India bottling units valued at $1 billion

NEW DELHI: The Coca-Cola Company is looking to sell its capital-intensive bottling operations in India at a valuation of $1 billion as it focuses on brands, marketing and strategy in line with global policy, two persons aware of the development said.

“Coca-Cola plans to start talks with large industrial houses for the potential divestment. The deal could take 12-18 months to close,” said one of them, adding that initial talks may have begun.

Hindustan Coca-Cola Beverages ( HCCB) has 24 plants and is in charge of bottling and distribution of beverages in India along with 13 franchisee bottlers who together have another 24 plants.

HCCB bottles 65% of the company’s total volume in India. Coca-Cola India supplies concentrate to all bottlers and is responsible for marketing, strategy and research & development.

The company’s brands in India include Coke, Sprite, Minute Maid juices and Kinley water. The formula for Coke is a highly guarded secret. The proposed sale of the bottling business marks a reversal of the strategy at the time of Coca-Cola’s return to India in 1993 after a 17-year absence.

Upon its re-entry, Coca-Cola acquired Ramesh Chauhan’s Parle beverage business, which had brands such as Thums Up, Limca, Citra and Gold Spot. The acquisition gave Coca-Cola access to bottling, distribution infrastructure and a 60% share of the market. It also inherited 55 Parle bottlers as franchisees.

The company had embarked on a prolonged and sometimes acrimonious process of buying out the franchisee bottlers. Some of them resisted the company’s moves. A Coca-Cola spokesperson said on Saturday that the company wouldn’t comment on speculation. Strategies followed elsewhere needn’t necessarily be implemented globally, the person suggested.

“We have recently announced accelerated bottling refranchising efforts in North America and China, similar to other initiatives underway in Europe and Africa,” the person said. “These announcements occurred independent of any other geography and we will not comment on market rumours or speculations.”

Refranchising means selling company plants to franchisees or bottling agreements for specific territories being signed with franchisees. In its fourth-quarter earnings call on February 9, Coca-Cola Chief Executive Muhtar Kent said: “We are significantly accelerating the pace and scale of our refranchising plans,” adding that the process is expected to be completed in North America by the end of 2017.

INDIA UNIT HAPPY
The India unit is happy with the current framework, the spokesperson said. “Our current bottling structure of a company-owned bottler and 13 other franchisee bottlers has been working very well,” the spokesperson said. “Together, we have built a strong foundation for our businesses in India.

Our bottling system is investing in innovation, infrastructure, technical capabilities, talent acquisition and business expansion. We are together focused on being a world-class marketing, manufacturing and sales organisation.”

HCCB’s operating revenue rose 14% to Rs 7,859 crore in the year ended March 2015, according to the latest Registrar of Companies (RoC) filing. Net profit rose 23%. In FY17, the company’s focus will be on shoring up profit because it wants a valuation of eight to 10 times EBITDA (earnings before interest, taxes, depreciation and amortisation) margin, said the people cited above.

The company returned to double-digit expansion in the October-December quarter last year after a year of single-digit growth. Rival PepsiCo had sold its company-owned bottling operations in north and east India to franchisee Ravi Jaipuria in 2014. The two territories account for 40% of national sales.