The Hindu Business Line : Food processing biz lures global pvt equity players

While the food and beverage sector witnessed PE investments of €4.2 million involving just two deals last year, the current year has already seen 11 deals worth €106.4 million.

Not only PE players, even FDI approvals in this sector have seen a significant surge, while companies such as Wal-Mart and Rothschild Group to PepsiCo are betting big on India.

“There appears to be high scope for consolidation in a fragmented market, with most businesses promising good and sustainable returns. In fact, companies are recording higher growth rate from this sector compared to the home and personal care segment,” according to a KPMG-FICCI report on the Indian food processing industry.

There has, indeed, been a spate of Indian initiatives and joint ventures in this space in the recent past. For example, Hershey acquired 51 per cent stake in Godrej Foods & Beverages, Indian Hotels acquired Amalgam Foods, Field Fresh- Bharti Group’s 50:50 JV with Rothschild and ITC developing its e-Choupal model for agri-sourcing — these are all indications of the growing interest global and domestic companies are evincing in the Indian market.

While many MNCs had opted for the inorganic route to enter the Indian market, others such as Danone, Fonterra and Pillsbury have preferred to enter the market organically. And in the near future, consolidation could be driven by the entry of more global F&B companies such as Associated British Foods, Kraft Foods, Masterfoods and United Biscuits, which are keen on establishing an Indian footprint, the study reveals.

A separate study by FICCI on the food and beverages market recently has pointed out that the segments within this sector that are expected to get high growths included branded flour (16 per cent), bakery products (11 per cent), biscuits (16 per cent) fruit juices, pulp and concentrates (18 per cent) and sauces/ketchups (17 per cent). Segments such as semi-processed/ cooked ready-to-eat, ice-cream and wine products are expected to register higher growth rates.

Bottlenecks

However, to tap the full potential offered by this sector, it is imperative that some of the infrastructure and other bottlenecks are erased.

“For example, the cold storage capacity in India today caters to less than 15 per cent of the produce and this too is of rudimentary nature, with over 80 per cent designed to handle only potatoes. There is also a paucity of chilling infrastructure for milk. Physical marketing and warehousing infrastructure also needed to be upgraded,” the KPMG report says.

Existing cold-storage players and equipment suppliers include Voltas, Blue Star and Kirloskar Pneumatics. Container Corporation of India’s initiative to set up a nationwide network of over 14 cold-chain complexes is expected to give a significant leg-up to the cold storage capacity.

According to the KPMG report, food and groceries form the biggest category of the retail pie, accounting for a share of 75 per cent. “However, this category has the lowest organised retail penetration of one per cent, which is indicated of the opportunity available in this space,” it points out.

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