Indian spices are quite the flavour in the mergers and acquisitions market. After Canadian food giant McCormick and Company's 26 per cent stake buy in Eastern Condiments, another Kerala-based spice firm, Melam, is looking to divest stake to an international partner.

With spices from India increasingly conquering American and European palates, private equity players here as well as spice companies say deals are cooking in this space, as the mainly small and mid-sized companies need funds to expand overseas.

The idea behind entering a tie-up with a foreign partner, says Melam, is to carry its brand name overseas and market its products abroad.

“It is a good opportunity to enter the US and European high-value markets where stringent quality controls and brand identity play a dominant role,” says Mr Kurian John Melamparambil, Managing Director of Melam, which has appointed Deloitte as consultant to identify a joint venture partner for technology, quality, packing and branding.

Mr Melamparambil said he would like to emulate the AVT-McCormick and Eastern-McCormick joint venture model. Though ideally he would like to hold 51 per cent equity in the venture, he said he would be flexible. Mr Nawas Meeran, Managing Director, Eastern Group, said his joint venture was a bid to grow into a national spices, condiments and curry powder company. “They have the wherewithal and expertise which will help us to grow,” says he.

Hot business

Private equity players say the spice segment is hot, and they are actively seeking out small and mid-sized companies willing to divest. Mr Amit Chilal, Director, Pune-based Parampara, confirms he has been approached by various PE funds, but is not in a mood to divest now.

“Right now we can do what we want to on our own,” he says, adding that in future they might be interested in allying with a partner who can get authentic culinary expertise on board.

Although the Western market is an attractive destination, where, Indian spices are finding favour for health reasons, entering these markets on their own steam throws up formidable challenges for Indian companies

The price of spices, condiments, spice oils and oleoresins in these markets is often 10- 20 times those prevailing in India. The quality controls are far more stringent. It is a very costly venture and only those with very deep pockets would be able to establish and survive.

But the rewards are equally alluring. Export of value-added products such as curry powder, mint products, spice oils and oleoresins accounted for less than 40 per cent of the country's spice export earnings. And even these would have been exported in bulk, to be re-packed in small packs for the international consumer.

Direct packing, marketing and sales would make a huge difference with realisations likely to go up by 10 to 20 times, trade sources said.

Of the Rs 6,209 crore realised from spices export between April and November 2011, over 60 per cent was from bulk exports with very low value addition.

(With additional reporting by Alka Kshirsagar in Pune)

> cj@thehindu.co.in

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