Orkla's Eastern Condiments acquisition may attract more MNCs to Indian packet food industry

Norwegian food giant Orkla to buy 67.8% stakes in Eastern for Rs 1,356 crore
Image courtesy: Twitter/Eastern Condiments
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Kochi: The recent acquisition of leading spice and curry masala maker Eastern Condiments by Norwegian company Orkla through its Indian subsidiary MTR Foods is expected to attract the attention of multinationals to the rapidly growing packet food industry in India.

The merger has come at a time when the dependency on ready-to-cook and ready-to-eat food has increased with Coronavirus scare confining more people to their homes.

Even from the long-term perspective, the spice industry leaders are optimistic about more consolidation happening in the industry.

“Such partnerships, which provide respect and value to the existing owners are good positive development. Eastern owners will have a say in the management,’’ says Geemon Korah, director and CEO of Kancor Ingredients Ltd.

The Eastern Condiments deal values the Rs 900 crore company at Rs 2,000 crore and gives owners Meeran family 9.99% stake in the final merged entity.

Vegetable kurma

The total spice products industry in India is worth over Rs 50,000 crore, of which the branded segment will be around Rs 20,000 Crore-Rs 22,000 crore as per the industry estimates. The sector is growing at a rate of 7 to 9 per cent annually, a factor which the multinationals looking for opportunities in India will bear in mind. And Kerala will rank high in the list of investors because of the presence of major spice products companies.

“The Eastern deal is a recognition for the knowledge leadership, value system and manpower pool of the company. That people are willing to invest in the spice sector in Kerala is a positive sign,’’ says Rajiv Palicha, chairman of All India Spices Exporters Forum.

The partnership with big corporates will help local companies primarily in two ways. One, it will bring in huge funds needed for expansion. Two, the reach of the company can be considerably expanded, pan-India as well as outside the country. Seeking private equity is another way of mobilising funds. But some believe it is a recipe for disaster.

“Private equities exit after creating maximum wealth in 5 to 6 years. After that the company could collapse. Instead, a strategic partner can help grow a Rs 700 crore company to Rs 70,000 crore in ten years with its money power and clout,’’ Korah points out.

Kancor, the Rs 800 crore spice extraction company headed by him, a fully-owned subsidiary of French flavour and fragrance house V Mane Fils, has benefitted immensely from the collaboration with the foreign partner pumping in 25 million euros in the last five years. It also plans to pump in double the amount in the next five years.

The Eastern Condiments deal is the first such instance in Kerala for a company strong in domestic market. The foreign company acquisition that happened earlier in the state was confined to companies predominantly in exports such as Kancor and Vallabhdas Kanji (VKL) before that. The Singapore-based Olam International Ltd. had acquired the spice division of VKL earlier in the decade.

India produced 9.4 million tonnes of spices in the country in 2019-20 as per Spices Board estimates. Of this, close to 90 per cent goes for domestic consumption indicating the dominance of local market.

After the merger formalities are completed, the MTR-Eastern combine will become one of the top five in the branded spice products segment, which include MDH, Everest and ITC after its recent acquisition of Kolkata-based Sunrise Foods.

While MTR is strong in vegetarian food, Eastern has expertise in curry masala and non-vegetarian segment.

Eastern Condiments chairman Navas Meeran says the merger will help expand the footprint of the products. “At present we are chiefly catering to the needs of Malayali community in Kerala and the Gulf. Orkla has significant presence in the US market. Hence there is a huge potential for growth,’’ he says.

The spice industry is expecting consolidation to pick up pace in the coming years.

“The multinationals are eyeing local companies with turnover of Rs 200 crore to Rs 300 crore or more with a strong local presence and better growth opportunities. And they are keen to retain the local flavours instead of promoting single brand nationally,’’ says Ashok Mani, MD and CEO of Intergrow Brands that markets Kitchen Treasures spice products.

(P K Krishnakumar is an independent journalist based in Kochi)

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