Coca-Cola India's HCCB Eyes Stake Sale, Dabur and Jubilant Owners Make Bids

Coca-Cola India's bottling arm, Hindustan Coca-Cola Beverages (HCCB) is actively seeking a stake sale ahead of its anticipated Initial Public Offering (IPO). The development marks a shift in Coca-Cola's strategy to leverage capital markets and attract high-profile business partners to fuel its growth ambitions in India.

According to recent reports, the Burmans of Dabur India and the Bhartias - promoters of Jubilant Group have separately bid for a 40 per cent stake in HCCB. The bids, valued between Rs 10,800 crore and Rs 12,000 crore ($1.3 to $1.4 billion) imply a total valuation of HCCB ranging from Rs 27,000 crore to Rs 30,000 crore ($3.21 to $3.61 billion). Both sides submitted their proposals over the weekend.

The Coca-Cola Co is now faced with a critical decision - whether to accept one of the bids or forge a consortium of investors. A final decision is expected by the end of this fiscal year.

In addition to the Burmans and Bhartias, potential investors reportedly include the family offices of the Parekhs of Pidilite Industries and the promoters of Asian Paints. Speculation also suggests that Kumar Mangalam Birla, Sunil Bharti Mittal and tech billionaire Shiv Nadar were approached, although only the Burmans and Bhartias have confirmed their bids.

Market Implications
Coca-Cola’s move to sell a stake in HCCB aligns with a broader trend observed in the beverage industry. Rival Varun Beverages, PepsiCo’s official bottling partner has seen its shares soar more than tenfold over the past five years due to its asset-light business model. PepsiCo’s strategy of outsourcing bottling operations has proven successful, prompting Coca-Cola to explore a similar approach with HCCB.

The decision to seek marquee business partners reflects Coca-Cola's intent to optimise its operations and capitalise on the domestic capital markets. By bringing in high-profile investors, Coca-Cola aims to enhance HCCB's market position and prepare for a successful IPO.

IPO Plans
HCCB is gearing up for an IPO, aiming to unlock notable value in a market where packaged beverages represent one of the lowest-penetrated FMCG categories. With India’s discretionary consumer spending on the rise, the sector offers growth potential. Coca-Cola is reportedly targeting a valuation of $4 to $5 billion for HCCB, underscoring the high stakes involved in the upcoming public offering.

The draft policy's restrictive measures have elicited mixed reactions from industry stakeholders. Media owners have voiced concerns about the lack of stakeholder consultation, arguing that the new policy could create visual clutter and negatively impact the city's aesthetic appeal while failing to address safety concerns effectively.

Future Prospects
HCCB's recent financial performance indicates growth, with a 40 per cent year-on-year increase in revenue to Rs 12,840 crore for FY23, up from Rs 9,147.74 crore in the previous year. The company's net profit more than doubled to Rs 809.32 crore in FY23.

Globally, Coca-Cola's bottling operations are a mix of listed and privately held entities, with the top five bottling partners contributing 42 per cent to its total unit case volume in 2022.