Marico in talks to buy food brands in South India

Written by Lalitha Srinivasan | Mumbai | Updated: Jul 6 2012, 07:04am hrs
After acquiring Paras Pharmaceuticals personal care business in February this year, Marico, makers of Parachute coconut oil and Saffola, is planning to acquire food product brands in South India, and is in talks with two food companies, industry sources said.

Anubhav Rastogi, head (M&As) at Marico, told FE the company has identified functional or health food as one of the segments of interest. We see this space as an opportunity to leverage our brand Saffola, which is positioned in the health space. We will be open to acquisitions in the food space in India, provided these are around health foods.

However, Marico had tasted little success with its salty baked snack Saffola Zest it launched in 2009, and withdrew the product from the market the very next year.

Indias packaged food industry is growing at a compounded rate of 15-20% and is expected to touch $30 billion by 2015, a study by Assocham , released in April, said.

Analysts said enhancing product portfolio will help reduce risk. Our channel checks indicate some concerns with Marico regarding its incomplete product portfolio and over-reliance on two brands of Saffola and Parachute. It will be a wise move for Marico to enter new categories now, said an analyst with a domestic brokerage firm in Mumbai.

Marico will be debt-free by 2014, giving it sufficient headroom to leverage the balance sheet, if need be, said Nitin Mathur, a consumer research analyst with Espirito Santo Securities. As on March 31, 2012, Marico had a gross debt of R800 crore and cash of R388 crore on its books.

According to Mathur, Marico has demonstrated that the company can derive synergy benefits from acquisitions and retain focus on volumes growth in the core businesses, despite sharp input cost headwinds. But the possibility of a value destructive acquisition is ruled out in the near future, since the company is still in the process of digesting the Paras Pharma buy, he said.

According to Rastogi Marico is looking at acquisitions in the emerging markets of Asia and Africa in hair care, skincare and male grooming.