Indian Stock Market

Tata Tea and Pepsi have signed an agreement to create a joint venture for health drinks.

Source: Economic Times

Tata Tea and PepsiCo took the first step to form a joint venture on Friday by signing a preliminary agreement for a new non-carbonated beverage entity. The new company will be exclusive for the Indian market, said Sanjeev Chadha, chairman of cola and snacks foods multinational PepsiCo.

“We will formalise the details within a couple of months. As of now, only the MoU (memorandum of understanding) has been signed,” he said. The development has raised questions about PepsiCo’s existing JV with Hindustan Unilever for marketing, selling and distributing Lipton ice tea.

HUL competes with the Tata Group firm in the packaged tea market. A joint statement issued by PepsiCo and Tata Tea said the proposed venture is not intended to conflict with any existing arrangements of the parties.

RK Krishnakumar, vice-chairman of Tata Tea, said he sees a strong and enduring partnership. “This exciting venture opens new dimensions for both enterprises,” he said. People familiar with the development said PepsiCo’s non-carbonated beverages such as Tropicana juices, Aquafina packaged water and lime-based Nimbooz may come under the new entity.

It could also include Tata Tea’s ‘good for you’ liquid beverages such as Himalayan packaged water and T!ON — a fruit juice and tea-based beverage. The two companies, however, said more details will be available only after the venture is finalised and executed, which is expected over the next few months.

It is not yet clear whether the proposed venture would be listed in India. Tata Tea is listed, but PepsiCo is not. So, the shareholding pattern of the new entity will have to be worked out. Tata Tea shares closed 2.83% up at Rs 1,000.05 on the Bombay Stock Exchange (BSE) on Friday.

Industry veterans and officials said the development is part of Tata Tea’s move to reposition itself as a ‘health and wellness’ company in the footsteps of foods major Nestle.

“Tata Tea is passing through a transition and over a period of time, it has positioned itself as a beverage brand instead of a plantation company. Now, it is moving further towards value addition and positioning itself as a health and wellness beverage company,” said Amnish Agarwal, FMCG analyst at Motilal Oswal Financial Services.

Tata Tea has made some significant global acquisitions in the food and beverage business. Its acquired brands include Tetley, Eight O’clock Coffee and Good Earth.

In 2007, it sold a 30% stake in the US-based Energy Brands Inc, owners of the Glaceau brands of functional beverages, to Coca-Cola less than a year after buying it for a windfall of more than $500 million.

India’s health and wellness food sector, estimated at Rs 5,050 crore, is growing at 24% a year, a report by Tata Strategic Management Group said last week.

Heineken Beers in India soon. Hope we can have a sip of Indian Made Heineken soon.

Heineken NV, the world’s third-largest brewer, has agreed a deal to brew and sell its own brand beer in India and will integrate its
various other operations in the Asia Pacific region.

In a complicated series of transactions, Heineken will acquire APB India from Asia Pacific Breweries Ltd (ABP), its own joint venture with Fraser and Neave, and transfer it into United Breweries Limited (UBL).

Heineken and UBL, 37.5 per cent owned by Indian tycoon Vijay Mallya and his associates and 37.5 per cent by Heineken, would seek to develop the Heineken brand throughout India, Heineken said in a statement on Monday.

“In the world of beer, there is no bigger or more exciting growth opportunity than India,” Heineken Chief Executive Jean-Francois van Boxmeer said in the statement.

“Our partnership and the combination of the Kingfisher and Heineken brands will transform our ability to unlock the market’s considerable potential and to shape the premium segment,” he continued.

Separately, Heineken said it would strengthen its APB alliance by transferring its controlling interest in PT Multi Bintang Indonesia (MBI) and Grande Brasserie de Nouvelle-Caledonie SA (GBNC).

Transfer of Heineken’s shareholding in MBI to APB would give rise to a mandatory cash offer for the MBI free float shares by APB, of which Heineken holds 42 per cent.

Heineken, whose chief brands are Heineken itself and Amstel, Europe’s number one and three beers, said overall it would book an exceptional pretax gain of 145 million euros ($219 million) in 2010. Consolidated net debt would fall by 175 million euros.

The effects would be broadly neutral at the level of net profit before one-off items.

Pepsi is planning to introduce an ultra cheap soft drink that will aid fight against anaemia in women in rural India.

The product expected to be launched as early as next year may cost just Rs 1 or 2 for a drink.
“The aim is to reduce incidence of anaemia among women in rural India by 20 per cent by 2020,” the source said but did not wish to be identified.

Research and development of the product is on both in India and the US, where the USD 39 billion convenient snacks, foods and beverages company is headquartered.

“The company is working toward making the anti-anaemia drink viable by reducing the cost on packaging and distribution,” the source said, indicating the possibility of the drink being distributed through local health centres.

Soft drink major Coca-Cola has hiked the prices of concentrates—the main ingredient in soft drinks—by a steep 10-15% on an all-India basis for most of its brands. While the move has begun hurting its bottling partners, which are already operating under pressure, Coca-Cola has no immediate plans of hiking the retail prices of its products.

For Coca-Cola’s bottlers, the hike in concentrate prices could not have come in a worse season. In addition to all-time high raw material and packaging costs and the recent fuel price hike, this season is witnessing a slump in sales in the North and Delhi-NCR region because of unseasonal rains. A hike in consumer prices at this point could further hit sales in the region. Rival PepsiCo has not hiked prices of concentrate this season.

While the prices of carbonated drink concentrates have gone up in the range of 10-12%, those of juice-based drinks like Maaza have been hiked by close to 15%, company insiders told ET. Leaving aside taxes, concentrate accounts for roughly 25% of the production costs per bottle on an average. Coca-Cola concentrates are manufactured in Pune. When contacted by ET, a Coca-Cola spokesperson declined to comment on the matter.

“On one hand, there are rising raw material, packaging, concentrate and fuel costs, while on the other hand, cola companies cannot afford to pass on the burden to consumers in a peak season that is already doing lean business because of pleasant weather conditions in the North,” a source said.

While for Delhi/NCR, May has been declared the wettest in the last 123 years, the prediction of an early monsoon—two weeks ahead of schedule—in North India is threatening to upset region-specific targets of soft drink companies. Sources said soft drink sales are impacted by as much as 70-80% on a daily basis in regions where it rains.

Also, since rival PepsiCo has not hiked concentrate prices, its bottlers are not operating under the same pressures. “Coca-Cola can only hike prices if PepsiCo does because of obvious competitive reasons,” the source added. The summer account for 60-65% of annual volume sales of soft drink firms. The industry, in fact, has been by and large operating at the same prices as it was in 2001, even though the companies have been vocal about the current pricing structure being unsustainable.

PepsiCo, traditionally one of Indian cricket’s largest advertisers, has been caught on the backfoot at the ongoing Indian Premier League (IPL).

IPL’s official beverage partner PepsiCo faced a near blackout at the opening match on Friday in Bangalore. PepsiCo has invested Rs 50 crore in a five-year deal as IPL’s official pouring rights and beverage partner, and its brands were to be shown at frequent intervals on TV screens at the dugouts and through visicoolers placed strategically in the stadium.

Sources said PepsiCo was ‘very upset’ with the IPL management and took it up with them, following which the soft drink company’s brands managed a small presence on television screens in the weekend matches.

PepsiCo officials declined to comment on the issue while an IPL official said: “Since Friday was the first match, we were still working out things. PepsiCo branding will be shown during the following matches.” Meanwhile, MindShare, the media buying agency that buys for PepsiCo, said that it was not involved in the deal since this was an on-ground partnership. “This deal was inked directly between PepsiCo and IPL and we have nothing to do with it. We do only on-air deals for PepsiCo,” a MindShare official said in response to an ET query.

PepsiCo is the only ground sponsor of the IPL to have got such a raw deal. Others such as title sponsor DLF, co-sponsor Hero Honda and umpire sponsor Kingfisher Airlines have all been getting sufficient mileage during the match telecasts. Broadcaster Sony Max’s sponsors Coca-Cola, Hyundai, Vodafone, Max New York Life, Godrej Group and Citibank too have access to on-air category exclusivity.

Additionally, rival Coca-Cola picked up team sponsorship of the Kings XI Punjab team during the weekend. The deal gives Coca-Cola not only branding rights on T-shirts and helmets of the Mohali team but also on-ground branding rights at the Mohali stadium. So, in effect, while PepsiCo remains one of the ground sponsors of IPL, it’s Coca-Cola which has got away with the rights to in-stadia branding on perimeters at least in the Mohali stadium.

Sources said PepsiCo may not have looked closely enough at the IPL’s clauses, and also that it may have underestimated rival Coca-Cola’s gameplan of activating a complete surround programme around the Twenty20 event.

PepsiCo has traditionally been one of cricket’s biggest advertisers and has in the past worked closely with the Board of Control for Cricket in India (BCCI). The soft-drink company has already committed about $60 million to the International Cricket Council (ICC) as one of its global sponsors

Liquor tycoon Vijay Mallya is open to buying back Heineken’s 37.5% stake in United Breweries (UB), in which he holds an equal stake, at the prevailing market price. “If you ask me whether I would buy them back, my answer is at today’s price, sure, I am a buyer,” Mr Mallya told ET. But Heineken sources said the Dutch brewer has no plan to sell its stake.

Heineken will inherit stake in UB from Scottish & Newcastle (S&N) after the completion of a worldwide takeover of the British brewer. The Heineken-Carlsberg combine announced S&N’s acquisition for $15.4 billion in January. The acquisition process is still on. At the current price, UB’s market cap is pegged at Rs 3,800 crore, down almost 50% from January’s peak. Mr Mallya will have to show up with Rs 1,425 crore if he were to buy back at the prevailing rate. The UB scrip closed flat at Rs 176 on BSE on Thursday.

A Heineken spokesperson said: “Heineken looks forward to a potential co-operation with Mr Mallya and we are in discussion with him and with our partner in Asia (APB). It is, however, too early to say more.” Mr Mallya said Heineken is not yet a shareholder in UB as the global transaction is yet to be completed. “My business agreement was with S&N, and Heineken will have to renegotiate a charter of rights. I cannot speculate on the outcome of our discussions,” he added

A fortnight ago, he had said talks with Heineken would gain momentum once it formally completes the S&N takeover, which is expected by April-end. A UB Group official said there is no immediate trigger to approach Heineken with a buyback offer. He also clarified that UB has no first right of refusal in S&N’s stake sale to Heineken.

Earlier on Thursday, while talking to media at the opening ceremony of his Four Seasons Winery at Baramati, Mr Mallya said: “They (Heineken) have beer business in India, which has a conflict of interest as Kingfisher is the largest beer brand in the country. I am ready to buy back their shares.”

UB has communicated to Heineken that it cannot operate competing structures in India. Heineken is the leading shareholder in Singapore-based Asia Pacific Breweries (APB), makers of Tiger beer, which is present in the Indian market. What if Heineken does not want to sell its stake in United Breweries? A banker close to the development said S&N had a business charter agreement with UB Group, which will not be automatically transferred to Heineken. “Now, Heineken will have to sign a fresh agreement with Mr Mallya. He can flex his muscle when Heineken comes to him,” he added

The United Spirits winery in Baramati is ready to take up its first ever harvest of the 2008 vintage. The company will be launching six varieties of wines this year with a target of 5 million bottles in five years.

Built over a plot of 300 acre, the crushing at the winery has begun and the bottling will begin by April. The winery will be fully ready by October 2008 and will then release wines made from grape varieties grown in Sahayadri valley of Maharashtra.

The company had recently launched its first Indian made wine – Zinzi, under the banner of Four Seasons Wines – a joint venture between USL (51%) and the Pawar family and the local farmers (49%) of Baramati, near Pune.  The oak-barrelled wines will be launched by Four Seasons Wines in November 2008 while the sparkling wines will be launched by 2009. The crushing was officially inaugurated by UB group chairman Vijay Mallya and Union Minister Sharad Pawar yesterday.

Besides 300 hundred acres of its own vineyards, Four Seasons Wines will enter into long term contractual agreements with local farmers for a further 1,000 acres of vineyards for its annual requirement. Besides, the company will also share its technical expertise with local farmers of Baramati and help in their viticulture

Champagne Indage Ltd has informed that the Company is entering into an arrangement (through its Wholly owned subsidiary, Indage Holdings Ltd.) with a Swedish Company for acquisition of distillery assets, ownership / licensing of luxury vodka brands produced in Sweden and their distribution rights with an option to acquire equity upto 49% in the Swedish Company over a period of 3 years. The arrangement will increase Company’s distribution bandwidth in the various global markets in the Vodka segment. The investment in the Swedish Company would be about USD 10 Million in the form of optionally convertible debt, working capital and funding for strengthening the marketing network of the Swedish Company. The detailed agreement is being finalized after the financial and legal due diligence.

Tata Tea Q2 net dips 43.71% at Rs 109.24 cr

Tata Tea Ltd has announced the following audited results for the quarter ended September 30, 2007:

The company has posted a profit after tax of Rs 64.81 crore for the quarter ended September 30, 2007 as compared to Rs 163.92 crore for the quarter ended September 30, 2006. Total income has increased from Rs 322.78 crore for the quarter ended September 30, 2006 to Rs 348.05 crore for the quarter ended September 30, 2007.

The unaudited consolidated results are as follows:

The group has posted a group consolidated Net Profit of Rs 109.24 crore for the quarter ended September 30, 2007 as compared to Rs 194.08 crore for the quarter ended September 30, 2006. Total income has increased from Rs 1014.94 crore for the quarter ended September 30, 2006 to Rs 1116.9 crore for the quarter ended September 30, 2007.