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BW Businessworld

Buying Into Kohinoor

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On Thursday, US-based spice maker Mccormik & Co announced a joint venture with Kohinoor Foods, one of India's largest retailers of branded Basmati rice. The NYSE-listed company will invest $115 million in the JV, dubbed Kohinoor Speciality Foods India, for an 85 per cent stake. The deal marks the largest inbound M&A deal in the Indian agri-commodities sector.

Since January 2010, the agri-commodities sector has seen 28-odd merger and acquisition deals, most of which have been domestic deals, according to research by Delhi-based VCCEdge. The last big inbound deal was the acquisition of Marico's Sweekar brand of cooking oil by US-based Cargill for approximately $75 million.

McCormik has been shoring up presence in India through the M&A route. Last year, it bought 26 per cent in Kerala-based Eastern Condiments for $38 million. Earlier, it acquired 50 per cent in Chennai-based AVT (AV Thomas Group), which makes ready-to-use spices, for $10 million. Now, it will sell branded rice, spices, sauces, seasonings and ready-to-eat foods in India through Kohinoor's distribution network. "McCormik plans to make India the marketing hub of branded rice and condiments," says Gurnam Arora, joint managing director of Kohinoor Foods. The deal enables Kohinoor, which already sells branded rice in 65 countries, to enter new markets through McCormik's global network.

The Indian branded rice market is estimated at Rs 600-700 crore. About 85 per cent of it is unbranded. "The financial performance of companies in this sector has been volatile and the margins are not very high. The deal will definitely improve the branded commodities market in India," says Sonam Udashi, head of research at IDBI Capital.

The Rs 850-crore Kohinoor has a rice polishing and packaging unit in Haryana. It will source and supply rice and other spices to the JV. Its rice brands Kohinoor, Trophy and Charminar will be transferred to the JV. The parent company will focus more on the exports business, which accounts for about 50 per cent of its revenues. Most of the products will be marketed under the Kohinoor brand, but McCormick will also retail some of its own brands in India. Its global brands portfolio includes McCormik, Schilling, Zatrains and, most recently, Lawry's and Adolphs.

The JV is also significant for the $5-billion Indian spice market. Of this a mere 10 per cent is branded, leaving enough headroom for both domestic and foreign players to grow. "Earlier the interest was only in sugar and coffee. There is now a growing interest in the branded commodities segment," says Ajay Parmar, head of research at Emkay Global.

(This story was published in Businessworld Issue Dated 13-06-2011)