The move by Nestlé India Ltd to acquire the health nutrition business of Speciality Foods India Pvt. Ltd is a significant one. Speciality Foods is a 100% subsidiary of Nestlé SA. The business being acquired had revenue of Rs29 crore in fiscal 2009. That’s a pittance, given Nestlé’s calendar 2008 revenue was Rs4,324 crore. But the acquisition is significant for other reasons.
It is rare to see a multinational company transfer a business being run under a wholly owned subsidiary to its listed company. There is, of course, the issue of whether it is a profitable business and the valuation, which will be known only later. More importantly, Nestlé gets a new product segment, healthcare nutrition.
The three products to be acquired by Nestlé are Resource, Optifast and Spert. These brands came into Nestlé’s global portfolio after it bought the medical nutrition business of Novartis AG in 2006. Resource is a supplement to help patients regain weight lost due to illness or surgery. Optifast is sold as a weight-loss product. Spert is a protein supplement. These are just a few of the products under Nestlé’s global healthcare nutrition portfolio, along with others in the paediatric care, critical care, diabetes, obesity and oncology segments.
Abbott Inc. had acquired the nutrition business of Wockhardt Ltd in India in July, citing expectations of strong growth in the Indian market in the coming years.
A Ficci-Ernst and Young study on the healthcare nutrition market put the market size at around $1 billion (Rs4,650 crore), growing at a three-year compound rate of 18%. It estimated the latent potential at two-four times the current size. Growing incidence of lifestyle-related diseases and a rising number of elderly people are some reasons for the higher growth. These products are relatively expensive and becoming affordable only due to rapid growth in income levels.
Nestlé is no stranger to incubating businesses, having built its noodles business from scratch. Its prepared dishes and cooking aids segment— Maggi noodles, sauces and instant soups—now contributes at least one-fourth of its revenue. It has a ready distribution network for these products, since it stocks products with chemists and retailers.
Modern retail’s growing reach will be a key driver for over-the-counter products. Nestlé’s healthcare nutrition products business could thus become a sizeable one, but over a longer period. Much depends on how much it intends to invest in growing it.