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Hershey to take full control of JV with Godrej

Source : BUSINESS_STANDARD
Last Updated: Fri, Sep 07, 2012 19:21 hrs

After months of speculation, American chocolate maker Hershey will acquire the balance 49 per cent stake held largely by Godrej Industries (43 per cent) and a minority shareholder ( six per cent) in the joint venture company Godrej Hershey Ltd. The deal, roughly Rs 200 crore in size, will be completed by the end of the second quarter this year, after which the wholly-owned subsidiary will be called Hershey India. The enterprise value of the JV has been pegged at around Rs 400-600 crore, persons familiar with the development said.

Hershey would assume about Rs 260 crore of debt as part of the deal and also own the Maha Lacto and Nutrine confectionary brands, as well as the Jumpin and Sofit beverage brands, which were part of the JV. The only product from the Hershey stable, which was included in the JV, was Hershey's Syrup.

The sales of Godrej Hershey's for the year ended March 31 was Rs 386 crore. But it continued to make losses even after five years of being in existence, which was partly one of the reasons why, say persons familiar with the matter, for the two partners to drift apart. For the year ended March, it had losses of Rs 74 crore.

With full control of the JV now, Hershey is expected to hasten the long-pending launch of its flagship chocolate brand, which shares the same name as the company. It is also expected to rollout popular products such as Kisses and Reese's in the Indian marketplace, which it has identified as key.

Kisses, for the record, is a conical-shaped chocolate wrapped in an aluminium foil, while Reese's is a chocolate candy. Flagship Hershey's Chocolate is a regular chocolate bar available in different flavours including milk, dark chocolate and extra dark chocolate.

The move to acquire full control comes at a time when rival companies such as Kraft are consolidating their presence in the Indian marketplace. Following the acquisition of British chocolate maker Cadbury in January 2010, Kraft has been steadily gaining ground here. It integrated three of its products - Oreo, Tang and Toblerone - with Cadbury in India and is likely to unveil new products from its international portfolio by next year.

In terms of share, Cadbury has an over 70 per cent hold of the Rs 3,000-crore-chocolate market in India, while Nestle is second at close to 25 per cent. The balance is controlled by Amul and other brands. In confectionary, a Rs 5,000-crore-market, Cadbury has a share of 35 per cent, followed by Nestle at over 14.5 per cent and Perfetti Van Melle at 14 per cent respectively.

J P Bilbrey, president & chief executive officer, The Hershey Company, said, "Confectionery and beverage category growth in India is solid and we’re excited about our opportunities. We’ll make the necessary investments in India to accelerate growth, leveraging our core strengths and business model.”

Mathew Lindsay, managing director, Hershey India, said, "With this new phase of the Hershey business in India, we aim to drive growth in this important market through product innovation, brand building and investment in our people and processes."

For the Godrej Group, meanwhile, the exit from the JV will mean focus on its mainline businesses. In a statement Godrej Group chairman Adi Godrej said, "Over the last few years, we have been following a disciplined approach to doubling down on our core businesses to drive sustained and profitable growth. We have been making clear choices to focus on areas where we have a competitive advantage and that provide the best growth opportunities for us. Our decision to divest our stake in the Godrej Hershey joint venture is in line with this focused portfolio strategy."



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