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Aarati Krishnan

Chennai April 3 On the face of it, Godrej Beverages and Foods, a relatively small subsidiary of Godrej Industries engaged in marketing of fruit drinks (Jumpin, Xs) and health foods (Sofit), may seem an unlikely choice for the US chocolate major Hershey's entry into the Indian market.

The sales consideration of Rs 238 crore (for a 51 per cent stake) values Godrej Beverages at about Rs 467 crore. But what has made Godrej Beverages a desirable acquisition candidate for the chocolate major is its ownership of Nutrine, one of the leading confectionery brands in the Indian markets.

Nutrine, acquired by Godrej Beverages in June 2006, is reported to have annual sales of Rs 350 crore - 400 crore and a 23 per cent share of the sugar confectionery market, with brands such as Maha Lacto, Koka Naka and Milk Eclairs in its portfolio. Quite apart from the brand equity, Hershey must see significant value in the company's distribution reach, estimated at about 16 lakh outlets, which can now be used to distribute Hershey's confectionery and snacks.

With this indirect acquisition of the Nutrine brand by Hershey and the earlier buyout of the Parry's brand by South Korea's Lotte Confectionery, Parle remains the only leading homegrown brand in the Indian sugar confectionery market. Hershey already has a joint venture agreement with Lotte Corporation to manufacture and market chocolates in the Chinese market. Will it explore a similar arrangement with Lotte in India? This is purely in the realm of speculation. But if it does, it may end up holding the lion's share of the Indian sugar confectionery market, turning the heat on other players.

Incidentally, IL&FS Investment Managers (from whom Hershey is now acquiring the 40 per cent stake in Godrej Beverages) shelled out Rs 60 crore just a year ago, to acquire its stake.

The price cited for the Hershey's deal places the value of this stake at about Rs 187 crore today.

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