Not Just Chings, Nestle India Has Many More Targets In Sight

“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," Suresh Narayanan, chairman and managing director, Nestlé India, said at the company’s local headquarters in Gurugram on Friday.

On 31 March, Bloomberg reported that Nestle India was among several large packaged food companies in the final talks for Capital Foods.

Narayanan did not confirm whether conversations of a deal with Capital Foods will fructify. “Well, the fact of the matter is that not only Ching’s but there are others also where we are participating. There are four criteria that we use—number one is adjacencies or plays within the categories (we operate in). Number two is significant opportunities in terms of value addition and growth. Number three is 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.

Consumer goods firms’ appetite for buyouts soared after the pandemic outbreak as consumers purchased more packaged goods. Late last year, packaged consumer goods maker Hindustan Unilever Ltd bought stakes in two digital-first health and wellness companies. In 2020, ITC Ltd bought spice maker Sunrise Foods Pvt. Ltd in an all-cash deal.

Narayanan acknowledged that the M&A market for consumer goods is “hot" with few companies of size and scale. “We do realize that this is a hot market, and there are 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.

Earlier this week, Nestle India reported a 25% jump in March quarter profit, driven by broad-based growth across categories. 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.

In the year ended 31 December 2022, Nestle India reported total sales of ₹16,790 crore. Nestle, which draws approximately 20% of its sales from the hinterland, said that rural demand, at least for the company, continues to be “strong". “It is difficult to guess how the impact of El Nino, monsoon and harvests will turn out, “but until any such event happens, I think the underlying robustness and receptivity to our portfolio continues to be fairly strong," Narayanan added.

Last year, Nestle pledged investments of ₹5,000 crore in India over the next few years, primarily for its packaged foods and chocolates portfolio, as it tries to capitalize on consumer demand for packaged foods.

Narayanan said that over the next two to three years, half of the investments will go into the coffee and confectionery portfolio. The move is in line with Nestle’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 the contribution of prepared dishes and cooking aids that include Maggi and others, stood at 32.2%.

Salience of confectionery and coffee is going up 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 confectionery 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 ₹5,000 crore capex," he said.