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India’s largest conglomerate, ITC Ltd, is reported to have initiated initial discussions with Norway-based consumer goods company Orkla ASA to acquire its Indian businesses, MTR Foods Pvt. Ltd and Eastern Condiments Pvt. Ltd, for $1.4 billion. The acquisition, if concluded, will further fit into ITC’s overall strategy of increasing its presence in major southern markets and enhancing its FMCG (Fast-Moving Consumer Goods) portfolio.
Orkla ASA, which entered the Indian market by acquiring MTR Foods in 2007 and Eastern Condiments in 2020, has been evaluating multiple exit strategies, including an Initial Public Offering (IPO) for its Indian businesses. However, it now considers a majority stake sale through a private deal if it secures a favourable valuation. Sources familiar with the matter told Mint that if the private sale does not yield an acceptable valuation, Orkla may still proceed with the IPO as a backup plan.
ITC’s Expansion in FMCG and Southern Markets
Acquiring MTR Foods and Eastern Condiments would be a significant step for ITC, reinforcing its presence in the spices, ready-to-cook, and packaged food segments. These brands have a strong foothold in Andhra Pradesh, Karnataka, Tamil Nadu, and Kerala, contributing over 80% of Orkla India’s Rs 2,400 crore revenue in FY24.
ITC has been strategically expanding its FMCG portfolio, as evidenced by its recent acquisition of Prasuma, a well-known brand in the ready-to-eat food category. The company has been aggressively entering the food business, leveraging its distribution network to gain a greater market share in India’s packaged foods market.
History of MTR Foods and Eastern Condiments
- MTR Foods was initially founded in 1950 by the Maiya family in Bengaluru. Over the years, the company diversified into ready-to-eat, ready-to-cook, and spice blends, gaining popularity in domestic and international markets, including North America, West Asia, Japan, and Southeast Asia.
- Eastern Condiments, a well-established brand, has a stronghold in the spice and masala market, particularly in Kerala and Tamil Nadu.
These brands have a strong foothold in Andhra Pradesh, Karnataka, Tamil Nadu, and Kerala, contributing over 80% of Orkla India’s Rs 2,400 crore revenue in FY24.
Both brands are desirable acquisition prospects for ITC as they have established production and distribution networks and a devoted consumer base.
Why Orkla is Considering an Exit?
While Orkla had been evaluating an IPO for its Indian businesses as recently as September 2024, it is now open to selling a majority stake if it can secure a better valuation through a private deal.
According to Mint, a spokesperson for Orkla ASA, based in Oslo, declined to comment on what was described as “unfounded market rumours or speculation.” Meanwhile, ITC has not yet responded to requests for comment from the media, including those directed to its Chairman and Managing Director, Sanjiv Puri.
Significance of the Acquisition for ITC
This takeover would give ITC a significant fillip in the food processing business, adding strength to its product basket in spices, masalas, and ready-to-eat/cooked foods. Some of the major positives for ITC are:
- Strengthened Presence in Southern India:
- ITC has a national footprint but has been looking to solidify its market position in South India, where MTR and Eastern Condiments dominate.
- These companies have strong customer loyalty, and ITC can tap into this.
- Diversification of Product Offerings:
- With MTR Foods focusing on ready-to-cook products such as idli mixes, upma, curry pastes, and Eastern Condiments dominating in spices and masalas, ITC can increase its segment of processed foods and spices.
- Leveraging TTC’s Distribution Network:
- ITC has an extensive supply chain and pan-India distribution network, which can further accelerate the growth of these brands.
- The company could also introduce these brands into its modern retail and e-commerce channels.
- Competing with Market Leaders:
- ITC could compete directly with companies like Hindustan Unilever (HUL), Nestlé, and Tata Consumer Products in the processed foods and spices categories.
- The spices and packaged food market is estimated to grow at a CAGR of 10-12%, making it a lucrative sector for expansion.
ITC has a national footprint but has been looking to solidify its market position in South India, where MTR and Eastern Condiments dominate.
Challenges and Roadblocks
While this deal offers significant opportunities, there are also difficulties that ITC needs to work through:
- Valuation Negotiations: ITC and Orkla must arrive at a mutually agreeable valuation. Orkla has not entirely ruled out an IPO if it does not receive a competitive private sale offer.
- Regulatory Approvals: The acquisition will require clearance from India’s Competition Commission (CCI) to achieve antitrust approval.
- Cultural Integration: If the deal is finalized, ITC must effectively integrate MTR Foods and Eastern Condiments into its corporate culture while retaining its unique brand identities.
- Maintaining Brand Equity: ITC and Eastern Condiments gained well-established customer loyalty over generations. ITC should take extra precautions to preserve customers after acquisition by not reducing present customers.
Conclusion: A Strategic Move for ITC
ITC and Eastern Condiments have developed strong customer loyalty across generations. ITC must take additional care to maintain customers after the takeover by not declining current customers. If the deal materializes, ITC will command the ready-to-cook and spices market while improving its market position in Southern India.
Orkla’s willingness to offer both an IPO and a private sale point towards the most important negotiations. If ITC is able to acquire these brands, it could further consolidate its position in the processed foods segment, adding to its current portfolio of brands such as Aashirvaad, Sunfeast, and Bingo.
As the negotiations drag on, market observers will keep a keen eye on whether ITC will seal this one, another hat tip to its FMCG success story. The buyout can set India’s packaged food sector into motion, clearing the way for consolidation and rivalry.
While this deal offers significant opportunities, there are also difficulties that ITC needs to work through:
Future Outlook
Since the Indian FMCG industry is poised to experience a tremendous growth boost, ITC’s investment in the food division enables consumers who need high-quality convenience. Industry analysts expect mergers and acquisitions in the sector to continue, with ITC set to emerge as a major player if the deal materializes.
Finally, the long-term success of the acquisition will depend on how well ITC manages to integrate MTR Foods and Eastern Condiments into its operations.
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