Nestle India Is Exploring All Acquisition Opportunities

“Let me tell you honestly, all acquisition opportunities are being looked at—this is a constant process of evaluation. In some we get closer, in some we get farther. That’s as much I can tell you," Narayanan said at the company’s headquarters in Gurugram on Friday.

Narayanan did not confirm whether conversations of a deal with Capital Foods are set to fructify. "Well, the fact of the matter is—that not only Ching’s but there are also others also where we are participating. There are four criteria that we use. Number one is adjacencies or play within the categories (we operate in). Number two is significant opportunities in terms of value addition and growth. Number three, conformity to the culture and quality standards of the company. And number four—it may not be hugely accretive but not significantly dilutive to the company portfolio. Within that we keep looking at startups, we keep looking at existing companies, new companies, whatever," he said.

Narayanan’s comments come as several large packaged food companies were reported to be in talks to acquire Capital Foods; Nestle India was among the final bidders, Bloomberg reported on 31 March.

Appetite among large consumer goods firms to buyout business has emerged strongly post the pandemic as consumers buy more packaged goods. Late last year, packaged consumer goods maker Hindustan Unilever Ltd picked up stakes in two digital-first health and wellness companies. In 2020 ITC Ltd., bought spice maker Sunrise Foods Private Ltd in an all-cash deal.

The M&A market for consumer goods is “hot" with few companies of size and scale, he added. 

“We do realize that this is a hot market and there are the only that many acquisition possibilities that are there of some size and stature. We do realize that, sometimes you have to pay top dollar for it. I don't think the company has got an appetite, which is any less, whether it happens or not, time will tell," Narayanan said.

Nestle India reported a 25% jump in March quarter profit driven by broad-based growth across categories. For the year ended 31 December 2022, the company reported total sales of Rs16,790 crore.

Narayanan said consumer demand at the moment remains “stable-to-positive". “There is a lot of overhang from an economic context and inflation, and war and various things that are being played out. I'm honestly not seeing that at least being played out in my categories so significantly. Yes, there are pockets of trouble and there are geographies of trouble…but I'm not seeing a doomsday scenario as far as consumption is concerned," he added.

The company that draws approximately 20% of its sales from the hinterland said that rural demand, at least for the company, continues to be “strong". "There is no reason to believe that there is anything else…unless El Nino, monsoon impact, crop etc how that dampens the economy is difficult for me to prognosticate. But until any such event happen, I think the underlying robustness and receptivity to our portfolio, continues to be fairly strong," Narayanan added.

Last year, Nestle promised investments of ₹5,000 crore in India over the next few years to capitalize on consumer demand for packaged foods. Investments are primarily planned for the company’s packaged foods and chocolates portfolio. 

Narayanan said over the next two-to-three years half the investments will go into the coffee and confectionery portfolio. The move is in line with the company’s plans to expand its portfolio beyond Maggi and milk products and make it more “balanced".

Milk products and nutrition contributed 40.4% to the company’s domestic sales growth in calendar year 2022; while contribution prepared dishes and cooking aids that consist of brand Maggi, among others, stood at 32.2%.

Salience of confectionery and coffee is going up quite smartly. It was a clear strategy to de-risk the portfolio (post the Maggi crisis), he said. "Almost half the investments that we'll be doing in the next two to three years would be around the coffee and confectionery portfolio. We are doubling our coffee capacities in Nanjangud; and we are expanding in Ponda and Tahliwal our confectionery facilities. We’re putting up a confectionary factory in Gujarat. As you see it, this contribution will start to go up too and become even more balanced. This is part of the Rs5000 crore cap-ex," he said.