Jubilant Bhartia Group Leads Race for Coca-Cola’s India Bottling Arm with $1.4 Billion Deal Zeroing In On India’s Lucrative Soft Drinks Market

The Jubilant Bhartia Group, led by brothers Shyam and Hari Bhartia, has emerged as the frontrunner to acquire a significant stake in the bottling arm of Coca-Cola in India – Hindustan Coca-Cola Beverages (HCCB).  

The Bhartia’s exclusivity agreement with Coca-Cola, edged out competition from the Burmans of Dabur.

The Bhartia’s offer aligns with India’s growing consumption patterns and rising disposable incomes, according to sources familiar with the deal. The well-diversified Bhartia family business spans sectors from food services to pharmaceuticals.

The recently inked exclusive pact by the Bhartias, allows them to negotiate the purchase of up to 40% in HCCB for a price ranging between ₹10,800 crore and ₹12,000 crore ($1.3-1.4 billion).

The move is also seen as part of Coca-Cola’s broader effort to replicate the asset-light value-unlocking model employed by PepsiCo, which has outsourced its bottling operations to Varun Beverages, owned by billionaire entrepreneur Ravi Jaipuria.

PepsiCo’s model has seen its business quadruple in value since May 2022, a result Coca-Cola hopes to achieve with a similar strategy.

Bhartias’ Advantage Over Competitors

Sources say that the Bhartias outbid the Burmans of Dabur, who were also in the running. While the final offers from both parties were submitted in London earlier this month, the Bhartias’ proposal offered more favorable terms.

The total valuation of HCCB, Coca-Cola’s wholly owned subsidiary, stands at ₹27,000-30,000 crore ($3.21-3.61 billion), as per sources.

While Coca-Cola, the Bhartias, and the Burman family office have remained silent on the specifics, it is expected that the negotiations will outline critical details, including deal structure and commercial terms.

One of the key stipulations from Coca-Cola is “generational capital,” which refers to long-term investments, which is why family offices, rather than private equity funds, were tapped for this deal.

High-profile family offices, including those of Sunil Bharti Mittal, Azim Premji, Shiv Nadar, and the Parekh family of Pidilite, were approached, although only the Bhartias and Burmans submitted final offers.

Coca-Cola’s Long-Term Strategic Vision

The potential deal with the Bhartias is part of Coca-Cola’s broader strategy to divest and list HCCB, facilitating price discovery and a move toward an asset-light model.

Earlier in January, Coca-Cola sold off bottling operations in regions such as Rajasthan, Bihar, the Northeast, and parts of West Bengal to local partners, generating ₹2,420 crore ($290 million).

HCCB, which operates 16 bottling factories across southern and western India, is responsible for distributing products to 2.5 million retailers through 3,500 distributors across 12 states.

Despite Coca-Cola’s divestment efforts, HCCB retains a substantial footprint. It manufactures and distributes 37 different products across eight categories, with plans to grow further.

India remains one of Coca-Cola’s top five volume growth markets globally, making the potential deal even more attractive.

Growth Opportunities and Market Dynamics

The Indian market for packaged beverages remains significantly underpenetrated compared to other FMCG sectors such as tea, soap, toothpaste, and biscuits.

Hence, it provides Coca-Cola and its bottlers with substantial room for growth, particularly as discretionary incomes rise across the country.

According to industry insiders, this is probably why Coca-Cola expects a premium valuation for HCCB, which it has pegged between $4 billion and $5 billion.

HCCB, in its FY23 annual report, noted favourable market conditions, including rising disposable incomes, increasing urbanization, and a growing preference for trusted brands. Simultaneously the company also emphasized its plans to expand in emerging retail sectors like e-commerce, grocery, and pharmacy.

HCCB has been actively investing in new packaging formats, such as 150 ml Tetra packs, 200 ml returnable glass bottles, and 250 ml PET bottles, to cater to entry-level price points to further broaden the company’s consumer base in India.

Even as traditional FMCG categories face challenges due to sluggish income growth and inflation, the soft drinks category has bucked the trend, showing strong performance.

A June report by global research firm Kantar revealed that bottled soft drinks have now breached 50% household penetration in India during FY23-24.

The Bhartias’ Diversified Portfolio and Strategic Alignment

The Bhartia family’s business is a vast empire ranging from Jubilant FoodWorks Ltd (JFL), India’s largest food services company, to pharmaceuticals, agri-products, and oilfield services.

JFL operates exclusive franchises for Domino’s Pizza, Dunkin’ Donuts, and Popeyes in India and holds the Domino’s franchise in five additional Asian markets. Their portfolio also includes Coffy, a leading Turkish coffee brand, and Hong’s Kitchen, a Chinese fast-casual brand.

The investment in HCCB is expected to be routed through Bhartia’s family office, to avoid any potential conflicts with their existing quick-service restaurant (QSR) chains, which would otherwise require approval from their global headquarters.

Thus, this strategic acquisition aligns with the Bhartias’ ambitions to capitalize on India’s growing consumption-driven economy.

The Last Bit, given Bhartias’ pursuit of a 40% stake in Hindustan Coca-Cola Beverages, marks a significant step in their expansion strategy.

As Coca-Cola moves toward an asset-light model and prepares for an eventual listing of HCCB, this deal offers an opportunity to unlock further growth in India’s growing soft drinks market.

The partnership between Coca-Cola and the Bhartias could reshape the future of the beverage industry in India which is seeing increasing consumer demand and favorable economic drivers.