Financial Daily from THE HINDU group of publications
Tuesday, Nov 23, 2004
Corporate - Alliances & Joint Ventures
DS Group plans jt venture with Lotte for confectionery biz
Sindhu J. Bhattacharya
New Delhi , Nov. 22
THE Rs 4,000-crore confectionery market appears to be witnessing a churn.
After Candico, the only homegrown domestic company in this business now, the Rs 750-crore DS Group plans to become the second domestic entrant, by forging a joint venture with the Japanese major Lotte Company Ltd.
The Rs 75-crore venture plans to manufacture chewing gum, chocolate, candy, biscuits, other confectionery and even ice-creams at Solan in Himachal Pradesh.
Known for brands such as `Baba' chewing tobacco, `Rajnigandha' pan masala, `Pass Pass' mouth freshener and Catch spices, the DS Group is now keen to develop its non-tobacco business and plans to enter the packaged fruit juice and confectionery businesses through two separate ventures.
Sources told Business Line that in the proposed joint venture, the DS Group will hold 30 per cent equity with the majority 70 per cent resting with the Lotte Company.
The joint venture will pay royalty of 2 per cent on ex-factory sales to Lotte for technology transfer license agreement and another 1 per cent for the use of Lotte trademark.
When contacted, the DS Group President, Mr Ashok Aggarwal, declined to comment. Lotte officials could not be reached.
Sources said that the Foreign Investment Promotion Board has okayed this proposal subject to the condition that the joint venture obtains an industrial license for manufacturing hard-boiled sugar candy, since this product is reserved for manufacture by the small scale sector. Also, the proposed joint venture will have to export 50 per cent of its hard-boiled sugar candy production.
Speaking to Business Line earlier, Mr Aggarwal had said the group has planned Rs 250 crore investment over the next few years in launching packaged fruit juices under brand name Catch, getting into end-to-end production of rubber thread for the readymade garment industry, setting up a new packaging unit and even a condom brand of its own!
"Not only will we consolidate our position in each product segment, the group is also keen to diversify into several new areas. In all, about Rs 250-crore investment will be made in the first phase of expansion," Mr Aggarwal had said.
Analysts said that while the DS Group has a well-developed umbrella brand with Catch, it needs to tread carefully in the highly competitive confectionery market which is characterised by rigid price points, increasing input costs and emergence of further competition.
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