Ahmedabad-based Zydus Cadila group outbid Coca-Cola Co, the world’s largest beverage company, to acquire the Indian portfolio of Kraft Heinz Co., for Rs 4,595 crore.

Zydus Wellness, the listed entity of the Zydus group, jointly with Cadila Healthcare, has agreed to acquire 100% of equity shares in Heinz India Private Ltd, the subsidiary of the Pittsburgh-based food company.

Zydus Cadila, in a statement, said that it will acquire brands such as Complan, Glucon-D, Nycil, and Sampriti, and two manufacturing facilities, with approximately 900 employees associated with these brands and operations, as part of the agreement.

“The sale of this niche business fits into our overall global growth strategy and our focus on investing in and growing brands within our core categories,” said Bernardo Hees, chief executive officer of Kraft Heinz.

“India continues to be a key market for Kraft Heinz, and in fact, we’re strengthening our commitment to expand and grow our Heinz sauces and Kraft business in India,” added Hees.

The transaction is expected to close in early 2019, subject to regulatory approvals. The valuation includes net working capital of Rs 40 crore, cash of Rs 15 crore and assumes no debt. J.P.Morgan Securities LLC served as exclusive financial advisor to Kraft Heinz for this transaction.

The sale is not expected to have a material impact on Kraft Heinz’s annual financial results, the company said. “At current FX rates, this business generates approximately $150 million (Rs 11.50 billion) in net sales and approximately $30 million (Rs 2.25 billion) in adjusted ebitda (earnings before interest, tax, depreciation, and amortisation).”

This valuation, at 4 times of revenues and 20 times of ebitda seems to be in line with what other national brands have got over the past few years, said Rajat Wahi, partner, Deloitte Consulting. “It highlights the “premium” on building national brands in a market like India, where between 80% and 90% distribution and revenue is still done through the traditional trade channel.”

This, said Wahi, requires companies to build a large distributor network (between 500 to 1,500 distributors) with thousands of sales people (feet on street) to cover between three to four million outlets directly and the balance similar number was of outlets through the wholesale/indirect channel. This takes years to build and fine-tune, and it is this which creates the premium for brands.

The consumer healthcare market in India (of which health drinks like Horlicks and Complan are a part) was estimated to be worth Rs25,400 crore in 2017 and expected to grow to over Rs 31,000 crore by 2020.

This deal has been a talk of the town over the past few months. Media reports said that Kraft Heinz was seeking around $1 billion for its assets. Potential bidders, including Danone, Tata Group, Nestle, Wipro Consumer, Dabur, Emami, and ITC eventually opted out due to high valuations.

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