PepsiCo Eyes Stake in Haldiram Snacks
PepsiCo has joined the fray to buy a minority stake in Haldiram Snacks, India's largest ethnic snacks manufacturer, after Temasek and Alpha Wave Global. While the latter two are said to be in advanced talks with the Aggarwal family, who founded Haldiram, PepsiCo's approach is still at the exploratory stage. According to sources, senior executives from the New York headquarters of PepsiCo have started talking directly with the Aggarwal family in recent weeks. The proposed investment would mark PepsiCo's first major foray into India's ethnic snacks market, which is growing rapidly and is a competitive space.
The Aggarwal family has pegged a valuation of Rs 85,000-90,000 crore for Haldiram Snacks and is looking to attract external investors for the first time. While Temasek and Alpha Wave Global submitted binding offers last month for a 10-15% stake, PepsiCo’s late entry signals its strategic intent to bolster its position in the Indian market. Industry insiders noted that PepsiCo’s global headquarters would lead the funding for the potential deal, with its Indian subsidiary playing a smaller role.
PepsiCo, whose brands include Lay's chips, Kurkure, and Doritos, has felt the heat from increasing competition in India's burgeoning snacks market. Regional players like Bikanerwala, Balaji, and Bikaji Foods have found a strong ground with ethnic snack offerings at significantly lower prices while fetching higher retailer margins. Although PepsiCo holds a 24% market share in the western snacking segment, it has failed to penetrate the ethnic snacking category comprising namkeen, bhujiya, and chana chur, thereby depriving the company of leveraging this large opportunity. This makes the right synergies with Haldiram interesting, where the vendor's ethnic snacking dominance could help PepsiCo gain an extensive distribution network and, more importantly, first mover advantage in a rapidly growing segment.
According to the reports, Haldiram Snacks, in FY24, had earned a revenue of Rs 12,800 crore; this is double the snacks business of PepsiCo India, with Rs 4,763.29 crore for nine months up to December 2023. 500 varieties of snacks, namkeen, sweets, and ready-to-eat meals compose its vast product portfolio. The firm has also strengthened its presence across northern and western India by consolidating its operations in the ethnic snack market.
The Indian snacks market, valued at Rs 42,694.9 crore in 2023, is projected to more than double to Rs 95,521.8 crore by 2032, according to market research firm IMARC Group. Growth factors include increasing disposable incomes, evolving consumer preferences, and the popularity of regional flavors. Analysts say that market leadership and wide distribution networks are making Haldiram's an attractive target for international giants such as PepsiCo that want to grow in India.
PepsiCo's current India head, Jagrut Kotecha, has been working in the snacks business and has been working to strengthen the company's presence in the country. PepsiCo's snacks and beverage divisions are comparable in size, and the company sees significant growth opportunities in aligning with a market leader like Haldiram. That way, a collaboration might also facilitate the offset of difficulties PepsiCo faces in its snacks business outside of North America. The international snack business showed a 4% decline in volume sales within North America for the June quarter of 2024.
However, industry experts remain skeptical. In the past, Haldiram has approached multiple international players-such as Mondelez and Kellogg's besides Tata Consumer- but still has not delivered one yet. Even the former CEO of PepsiCo, Indra Nooyi, had meetings with the Aggarwal family, but those discussions did not culminate in a deal. Analysts feel that if the Aggarwals decide to take on a strategic investor, they would likely look for competitive bids to maximize the valuation.
Currently, Temasek is the frontrunner in the race. It has reportedly submitted a winning bid of more than $1 billion for a minority stake. In December 2023, three other groups consisting of Blackstone-led Abu Dhabi Investment Authority, along with GIC of Singapore and Temasek-Bain and Alpha Wave - had submitted binding offers. After that, Bain Capital dropped out of the bidding process.
The Aggarwal family may find it difficult to get investors to pay a high valuation, as proposed by Haldiram. Some analysts feel that the Aggarwals might finally agree to sell the business in its entirety rather than settling for a minority stake. "Even at a valuation of $10-12 billion, there will be enough takers for Haldiram", said the CEO of a domestic snacks company. However, the Aggarwals are known to demand a premium, which has derailed similar talks in the past.
For PepsiCo, a minority stake in Haldiram represents a strategic opportunity to strengthen its presence in India, a market identified as a key growth driver by the company’s global leadership. During its third-quarter earnings call in October, PepsiCo Chairman Ramon Laguarta highlighted the robust growth in markets like Southeast Asia and India. Snacks and beverages witnessed high single-digit growth in the India business for the July-September 2024 quarter, indicating its significant position in PepsiCo's global portfolio.
The company has a history of strategic acquisitions in India, with the most notable being the purchase of Uncle Chipps, a popular potato chips brand, back in 2000. Despite dominating the western snacks segment, it hasn't been able to do so in the ethnic snacks category, where Haldiram remains the undisputed leader. As the company grapples with mounting competition in the snacks market, especially from regional players who offer products that better cater to local tastes, this deal may seem particularly appealing.
As the discussions continue, it is not clear whether PepsiCo will come out with a deal from the exploratory talks with Haldiram. While the deal will be a huge push for PepsiCo in the Indian snacks market, the Aggarwal family's high valuation expectations and their history of walking away from negotiations will make the process complicated. The stakes are high for all contenders vying for a piece of Haldiram's success story as the Indian snacks market is poised for exponential growth.
