PEs add spice firms to shelf, invest Rs 5,000 cr to expand biz, enter mkt

Market is expected to touch Rs 50K-crore mark by 2025

Private equity investors and large domestic food companies have splurged close to Rs 5,000 crore to pick up stakes in, or acquire, branded spice companies, either to enter the market or expand their market share.

These include A91 Partners (25 per cent in Pushp Spices for Rs 126 crore in a primary fund raise), Investcorp (a minority stake in Intergrow Kitchen), Indian food companies such as ITC (100 per cent in Sunrise for Rs 2,100 crore), and a Norwegian conglomerate which owns MTR Foods (a majority stake in Eastern Condiments valued at Rs 2,000 crore).

On Wednesday, Dabur joined the party by becoming a new entrant in what is predicted to be a Rs 50,000-crore market by 2025. It signed up to acquire a 51 per cent stake in Badshah Masala for Rs 588 crore (the company has an enterprise value of Rs 1152 crore). The various moves mark an attempt by companies like ITC, Dabur, and MTR-Orkla to consolidate the spice business which has many regional brands catering to local tastes.

Dabur, with its pan-India reach, would look to further consolidate this reach. That is exactly what ITC is also doing by buying a stake in Sunrise and what Orkla-MTR is doing with Eastern Condiments. The spice and condiments business is attractive because, according to Avendus which has been associated with numerous deals in this segment, it will be a Rs 50,000 crore market opportunity by 2025, up from around Rs 25,000-30,000 crore today.

The organised sector’s share which stood at around 36 per cent in 2020 is expected to go up to 50 per cent by 2025. More importantly, spices have one of the highest margins in the food and beverages business. In blended spices, the margins are as much as 45-50 per cent higher than in biscuits (35-40 per cent), dairy (15-20 per cent), savoury snacks (35-40 per cent), and staples (10-20 per cent).

However, straight spices have slightly lower margins of 35 per cent. Avendus points out that the game being played right now by companies is to increase their share in the blended spices category which they estimate will grow at a CAGR of 25 per cent compared to 15 per cent in the straight spices category. It is also noteworthy that it is perhaps the only segment that MNC food companies have not been able to dominate, unlike other segments.

In juices, for instance, Coke and Pepsico control nearly half of the value share of the market. In noodles and pasta, Nestle rules supreme. In savoury snacks, Pepsico is a force to reckon with among the top five brands. But in spices, the top five brands such as Everest or MDH have traditionally been controlled by Indian brands.  This could well change after Orkla-MTR Foods bought Eastern Condiments, which will be merged with MTR Foods. Orkla-MTR foods are looking at an aggressive push across the country.