India is long known as the spice powerhouse of the world, as not only does it produce 75% of global spices, but given Indians strong orientation for spicy and savoury snacks and meals, it is also amongst the world’s largest consumer. India also leads in the global exports of pure and packaged spices.
While domestic spice consumption (loose and packaged) is expected to grow at ~10% p.a. taking the industry to a sizeable of Rs 90,000 crores+ by 2025, interestingly it is the Branded Packaged Spices and Spice Blend (“BPSSB”) segment, which is expected to grow at double the rate and account for ~ 50% of the total sector sales by 2025.
Growth in the BPSSB segment has been propelled by the shift in consumption from loose unbranded to branded packaged spices and spice blends, driven by consumer demand for:
- Convenience and ready availability of quality spices and spice blends, replacing the task of cleaning and processing spices and make ‘own blends’ at home.
- Hygienic, pure and quality products, addressing consumer concerns on adulteration, freshness and origins.
- Superior packaging, assuring retention of taste, color, freshness, natural qualities etc.
- Increasing demand of spice blends, catering to an expanding consumer palate exploring varied Indian and International cuisines (e.g. popular spice blends now universally consumed include sambhar masala, pav bhaji masala, meat masala, chaat masala, biryani masala, schezewan masala, pizza masala etc.), accelerated by the boom in ‘home cooking’ due to the pandemic.
Interestingly, the organised industry today has players ranging from large national/ multi-regional players to niche regional players. Large players i.e. Everest, MDH, Aachi, Shakti, Ramdev, Goldiee, MTR-Eastern, Catch etc enjoy a strong market position, as do select homegrown regional players i.e. Badshah, Suhana, Nilons, Ruchi, Golden, Pushp, Vasant, Brahmins, Melam etc. Adding to the mix, are large F&B companies and institutional spice players foraying into the BPSSB category. While many have launched their own spice brands i.e. Tata Consumer’s Tata Sampaan, Emami Agrotech’s Mantra, Intergrow’s multi-brand offering of Vieda, Kitchen Treasures and Sprig, Paras Spice’s Orika, the inorganic route remains attractive. Notable transactions being ITC’s acquisition of the regional brand Sunrise Spices and MTR-Orkla’s acquisition of a majority stake in Eastern Condiments.
While overall industry prospects remain bright, given the competitive landscape, challenges remain at both ends …..for large players it is overall growth, especially gaining foothold into the strongholds of established regional players and for the latter it is the need to ward off larger players making inroads into their core markets. Exports which has been a steady lucrative market for many players, may also witness a shift towards larger players, given the growing demand for certifications and minute traceability of supplies by large institutional and retailer buyers overseas.
Given the above, we believe that entrenched players would look to achieve their growth objectives through a mix of ‘build and buy’ initiatives. Organic initiatives include building capabilities in bulk procurement of quality / seasonal raw materials, investment in modern processing, packaging, storage facilities and new product development (higher margin, unique spice blends), developing deep distribution networks (as general trade still accounts for over 85% of the total sales) and undertaking sustained, innovative media campaigns to build brand equity, recall and loyalty. On the inorganic side, large pure play spice companies, large F&B companies and strong regional brands with growth ambitions would emerge as likely consolidators, while opportunistic sellers could entail traditional trading houses with limited brand-product presence, sub scale players with weak supply chains and players with niche/ focused products who given the challenging operating environment may seek to be part of a larger platform wherein the brand/ products are able to perform better to their potential.
With limited public market benchmarking, we feel transactions might get valued closer / at discount to transactions in branded FMCG space. We believe that level of integration, quality of infrastructure, brand equity and scale would be the key value drivers with premiums being offered for the highly integrated, scaled branded players. Valuing brand equity especially for regional brand would be key. On a broad basis, we believe that transaction multiples in this space could range between 1.5-2.5x sales or 15-25x EBITDA.
Spices as an integral part of every Indian household’s grocery basket is a ‘must be’ category for every long term player, this we believe will drive transaction momentum in the sector !
