PE players, FMCG companies betting on branded spices, condiments market

Private equity (PE) players and fast moving consumer goods (FMCG) companies are increasingly betting on the branded spices and condiments market, negotiating with incumbents in the category to either buy them outright or pick up controlling stake.

Earlier this week, hotels-to-cigarette major ITC announced it had signed a share purchase agreement with Sunrise Foods to fully acquire the firm in a deal valued at Rs 2,000 crore.
 

ITC, which sells branded spices under the Aashirvaad brand, had said the deal was aligned with its strategy to “rapidly scale up its FMCG business”.

“The proposed acquisition will augment our product portfolio and is in tune with our aspiration to increase our spices business and expand its footprint across the country,” the company said.
 

Another deal that is expected to close in the coming weeks involves Bengaluru-based MTR Foods, a subsidiary of Norwegian group Orkla. MTR is said to be the front-runner in the race to buy a controlling stake in Eastern Condiments, with the deal estimated to be valued at around Rs 1,800 crore, investment banking sources said.

A decade ago, the Meeran family, promoters of Eastern Condiments, based in Kerala, had offloaded 26 per cent stake to US-based spices major McCormick. They currently hold 74 per cent in the firm.

McCormick might be given the option to exit the firm at a later stage, investment banking sources said. More transactions are likely in the months ahead as PE players such as Warburg Pincus and General Atlantic have evinced interest in firms such as Everest and Badshah Masala, respectively. Suhana Masala, based in Maharashtra, is also scouting for investors, it is reliably learnt.
 

Abha Agarwal, co-head, consumer and financial services, Avendus Capital, says high growth, strong brand affiliation and customers’ need for convenience are driving investor interest. “Spices and snacks are two categories that we’ve always called out as interesting segments for investment in foods. Spices is a large category and the shift from unbranded to branded is happening fast,” she says.

Data by Venture Intelligence shows that eight PE-VC deals were wrapped up in the last two years in spices and condiments in India, amounting to $ 262 million (or over Rs 1,900 crore).
 

There were three M&A transactions in the last year alone in spices and condiments including ITC-Sunrise in May, Mumbai-based Foods & Inns acquiring Kusum Spices in October 2019 (for Rs 15 crore) and Swiss company Firmenich picking up a majority stake in PE firm True-North-owned VKL Seasoning last May for an estimated Rs 900 crore.

Kanwaljit Singh, managing partner at Fireside Ventures, says consumers have in the last few years realised the importance of packaged products versus loose consumption. “An entry into branded spices can give a player greater access to the kitchen, including into categories such as pre-cooked meals, pickles, curries etc, giving investors a bigger slice of the food basket and, therefore, sales,” Singh says.

This point is endorsed by Harish HV, managing partner at ECube Investment Advisors, who says recall for branded players has grown in the last few years. “A lot of small and big names in the masala and spices category are advertising heavily on television. So recall remains high. Also, regional masalas tend to have a strong pull in the areas where they are consumed heavily, ensuring players have steady sales,” he says.

Sunrise, for instance, is strong in the east. Ashok, Catch and Goldiee Masale are strong players in the north, MTR in the south and Everest in the west. Brands such as MDH and Maggi masalas from Nestlé India have a pan-India presence, analysts tracking the market said.

But some investors warn that there are actually fewer companies with reasonable recall and scale to choose from in a fragmented market. The overall condiments and spices market in India, according to industry experts, is pegged at Rs 35,000 crore, with the organised segment constituting a fifth of it (or Rs 7,000 crore), but growing at 15-17 per cent per annum.

“What kind of a portfolio a masala company has also counts,” says Dhanraj Bhagat, partner, Grant Thornton, who’s been advising his clients to look at spices companies closely. “Spices are traditionally used in Indian cuisine, but the more value-addition a spices company can bring to its portfolio the more margins it can attract. This makes it attractive from an investment point of view,” he says.

Agarwal of Avendus Capital says blended spices used in pav bhaji, tandoori chicken, and sambar, for instance, enjoy gross margins that are “double” that of chilli or turmeric masala. They are also priced higher than regular masalas.

Most of the top spices and condiments companies in India, whether regional or national, have a range of masala mixes in their portfolio, catering to a cross-spectrum of Indian tastes and dishes.