There’s Still Value In Buying A Health Drink Brand In India’s Slowing Market

This is the best time for buyers hunting for a health drink brand in India.

They can expect to negotiate a discount as two market-leading products are up for sale at the same time. American food company Kraft Heinz Company is considering sale of its Complan nutrition drink brand, Bloomberg reported citing unnamed people. That comes a couple of months after GlaxoSmithKline Consumer Healthcare Ltd. announced it's seeking a suitable buyer for malt drink Horlicks to fund its $13-billion acquisition of Novartis' stake in a joint venture.

Plans to sell the brands come as growth has slowed down. The market for both the products is expected to grow at less than half the pace in 2017-22 compared to the previous five-year period, according to Euromonitor International. That shouldn't be a deterrent, at least two brand consultants said. The world's second-most populous nation with 1.3-billion people offers an opportunity as growth is expected to boost incomes, especially in smaller cities and towns.

“Companies buy brands for a variety of reasons like distribution reach. Both Complan and Horlicks are powerful and well entrenched in the minds of the consumer,” said brand consultant Santosh Desai. “They will look at the brand asset and not just the category. There is still a possibility for the acquirer.”

Horlicks leads India's Rs 7,873-crore malt drink market and competes with Mondelez International's Bournvita, according to Euromonitor International. Complan is No. 1 in the Rs 1,700-crore supplement health drink category, followed by Abbott's Ensure.

Both Complan and Horlicks brands are well established but Kraft Heinz and GSK Consumer Healthcare didn't expand product portfolios, said Alpana Parida, managing director at brand strategist DY Works “The acquirer can definitely use these names and launch more nutrition products.”

Another factor that a potential buyer could review is pricing.

Higher price points could have been one of the reasons that growth stagnated over the last few years, said Dhanraj Bhagat, consumer and retail partner at consultancy Grant Thornton India LLP.

Discounted Valuations

Nearly 24 years after acquiring Complan from erstwhile Glaxo, Kraft is eyeing $1 billion (about Rs 6,500 crore) from the sale, according to the Bloomberg report. That's steep. The company, in its 2016-17 filings with the Registrar of Companies, said sales declined 16 percent to Rs 440 crore. It's market share dropped 1.5 percent during the period.

There's no clarity on how much GSK Consumer Healthcare is seeking for its brand. Horlicks and Boost, according to its filings, contributed nearly 95 percent of its Rs 4,209-crore revenue in the year ended March 2017. The sales rose marginally in the last four years.

While GSK Consumer Healthcare said it continues the strategic review, the company hasn't made any decision. Kraft Heinz is yet to respond to BloombergQuint's emailed queries.

Harish Bijoor said prospective buyers will drive discounts. “Valuations [of the two brands] could take a hit up to 15 percent as it raises questions on the growth rate of this market,” he said over the phone. “Despite the overall consumer market witnessing a pick-up, the health foods space is growing only in the non-sugar market.”

Prashant Agarwal, joint managing director at retail consultant Wazir Advisors reckons the long-term Indian consumption story remains intact, which buyers will take into account while making an offer to acquire either of the two health drink brands. But he agreed that two similar products being available for sale at the same time could dent valuations by around 10 percent.

Who May Be Interested

After Glaxosmithkline Consumer's decision to consider a strategic review of Horlicks, JP Morgan said in a March report that companies with interest in food and nutrition space like ITC Ltd., Marico Ltd., Britannia Industries Ltd. and Dabur India Ltd. may be interested in entering this segment.

Dabur declined to comment citing company policy. BloombergQuint's emails to others on whether they will consider buying Complan or Horlicks remained unanswered.

Agarwal expects the same set of potential buyers to show interest in the two brands.