Sale of three bottling plants in India fetches Coca-Cola Rs 500 crore

As a part of the transition, Hindustan Coca-Cola Beverages divested three of its existing plants in the region - one each in Ghaziabad, Varanasi, and Jammu

Coca-Cola sold its three bottling plants in India for over Rs 500 crore ($73 million) in December, the beverages major informed the New York Stock Exchange on Thursday.

“During the three months and year-ended December 2019, the company recorded a net gain of $73 million on account of the refranchising of certain bottling operations in India,” it filed. 

During the corresponding quarter in 2018, it had gained $47 million by refranchising bottling operations in Latin America.

As a part of the transition, Hindustan Coca-Cola Beverages (HCCB) divested three of its existing plants in the region — one each in Ghaziabad, Varanasi, and Jammu. The refranchising exercise, which resulted in the company exiting bottling operations in northern India, left the cola major with 15 plants in the country.

Following its global model, Coke owns and operates bottling plants through HCCB — a subsidiary of its global bottling arm Bottling Investment Group — in India. Coca-Cola India owns the rights for its secret formulations and is in charge of promotional activities.

“The impact of these refranchising activities has been included as a structural change in our analysis of net operating revenues on a consolidated basis, as well as for Asia Pacific, North America, Latin America and Bottling Investments operating segments,” the firm added.

This move follows PepsiCo’s divestment of bottling assets to its key franchise partners, such as Varun Beverages, in the past five years. Unlike Coke, PepsiCo does not bottle any of its beverages in India now. 

While both have refrained from relating any of these moves to their respective profitability, experts said the exit from bottling operations were related directly to improving bottom lines. Being a low margin business, bottling and marketing of beverages usually puts strain on a firm’s margins.

The company also informed its investors through its filings that during the December quarter, the India unit drove its operating income. 

“Operating income growth in the quarter was driven by strong underlying operating leverage, primarily in the company’s bottling operations in India,” it said.