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MUMBAI : India’s branded spices and condiments industry is likely to see increased deal activity this year due to growing interest from private equity (PE) firms and large fast-moving consumer goods (FMCG) companies, which are vying for market consolidation.

Already, several deals are brewing in the segment. This includes Kolkata-based Sunrise Foods Pvt. Ltd, which received interest from global private equity firms such as Carlyle Group and Norwegian supplier of branded consumer goods Orkla Foods to buy a stake in the company, Mint reported on 22 January.

Talks are also on among other spice makers such as Kerala-based Eastern Condiments Pvt. Ltd, which is looking to sell a controlling stake, and Mumbai-based Badshah Masala, which is in talks with PE firm General Atlantic-led Capital Foods to provide an exit to its promoters, according to various media reports.

While consolidation is a key driver, the deals are also driven by a shift in consumer preference from local dealers to organized spice makers, said industry experts. “Historically, the spices sector has not seen much deal activity. However, with increasing shift towards branded spices and blended masalas over the last few years, this sector is witnessing strong interest," said Anshul Agarwal, co-head, consumer, financial institutions group and business services, of investment banking firm Avendus Capital. According to Ashwani Khare, executive vice-president, corporate finance, ICICI Securities, the spice business has become attractive to investors because of its potential to expand into other product lines such as premixed blends, ready-to-eat curries, pickles and jams.

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint

“Spice brands have also been reasonably successful in extending the brands towards other food and grocery products. Among the groceries, especially, we feel spices could be the most attractive bets for PE firms," he said.

There were eight PE deals worth nearly $262 million in the spices and condiments industry in the last two years, topping eight deals worth $48 million during 2015-2017, according to deals tracker Venture Intelligence.

The largest PE-led deal in this segment, so far, was General Atlantic’s $185 million investment for a 27% stake in Ching’s Secret, a brand owned by Capital Foods Ltd, which makes desi Chinese masala, sauces, instant noodles and soups.

The bulk of the deal-making was prompted by large FMCG firms buying stakes in Indian companies.

In 2017, US’s McCormick and Co., which sells Kohinoor packaged rice in India, bought Kohinoor Speciality Foods India Pvt. Ltd, and began commercial production of Indian spices, ready-to-cook recipe mixes and ready-to-eat products. In 2010, it had also bought a 26% stake in Kerala-based Eastern Condiments Pvt. Ltd for an estimated $35 million. In April 2019, homegrown PE firm True North sold its majority stake in food ingredients and flavouring solutions firm, VKL Seasoning Pvt. Ltd., to Swiss firm Firmenich.

PE firms are largely looking for companies that have a strong regional presence and brand recall.

“Spice makers with a strong brand presence pan-India, those with regional leadership, higher proportion of masala and the ones which have high scale, geographical spread and growth potential are typically interesting to PE firms," said Haresh Chawla, partner, True North.

“It’s a massive market estimated at 40,000 crore annually, growing at about 5%. However, branded spices and seasonings constitute just about 15% of the market and the growth rate in that segment is much faster and, over time, we’ll see a structural shift to branded spices and mixes," Chawla said. While PE firms and strategic investors are showing interest, Indian promoters are also turning more comfortable in divesting stakes in their companies to grow faster and beat competition.

“Most of the spices brands, which we see, have been built over the last two-three decades. The deals doing rounds are all specific situations, wherein some promoters want to retire, or shareholder/family member needs an exit," Khare said.

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