Complan sale unlikely to fetch Kraft Heinz ~70 bn HIGH EXPECTATIONS

US-based food and beverage major Kraft Heinz is unlikely to get $1 billion (around ~70 billion) from the sale of its nutrition drink brand Complan, sources claim.

Binding bids in the range of ~30-35 billion (around $500 million) are expected to come in, claim people in the know. An investment banker noted, "They will be lucky if they get 5-6 times of Ebitda, versus an expectation of 20X. In that valuation, a new, much better brand can be created."

A potential bidder seeking anonymity tells Business Standard they are keen to pursue the deal and submit bids. "We are there in the bidding process. We are interested in the asset. We will do due diligence. But, ~70-billion valuation is a bit too high for the brand."

The price sought by Kraft translates into more than 20 times the Ebitda of Complan, market sources claim. India Infoline says Kraft Heinz's consumer business had annual sales of ~18 billion in FY17, of which Complan contributed nearly 40 per cent. This works out to be roughly ~7.2 billion revenue from the brand in FY17 or that Kraft Heinz is seeking around 9-10 times of the brand’s revenues.

Complan sale has attracted interest from Cadila Healthcare arm, ITC and Wipro, sources claim. Binding bids are expected to be filed by mid-September.

An e-mail sent to Kraft Heinz has remained unanswered.

Another person close to the development claims binding bids from bidders in the range of ~30-35 billion are expected to come in. “The deal is unlikely to fetch binding bids worth ~70 billion as the market for nutrition drinks in India has seen a slower growth trajectory in the past few years. Bids of around ~30-35 billion are likely to come in,” he adds.

Complan is the leading brand in the supplement nutrition drinks segment in India, where players like Abbott (with Ensure) are present, according to market research agency Euromonitor International. The category size is around ~16.95 billion. The growth rate, however, has come down in the recent years - from 21.3 per cent in 2013-14 to 11.5 per cent in 2016-17.

The value growth forecast, too, is muted. According to Euromonitor, value growth rate would taper down to 5.3 per cent for the segment in 2021-22 from 6.3 per cent in 2017-18.

Kraft Heinz was created two years ago after the merger of Kraft Foods and Heinz. Heinz had acquired Complan brand from Glaxo in 1994.

Interestingly, another leading health drink brand GSK Consumer's Horlicks, too, is on the block. India Infoline says the total estimated value for GSK's consumer health nutrition business is estimated to fetch more than $4 billion (or ~280 billion).

GSK's nutrition revenue in 2017 was around 550 million pounds (or around ~49 billion), bulk of which comes from Horlicks sales in India. It is thus seeking around 5 to 6 times the 2017 revenue compared to 9-10 times revenue sought by Kraft for Complan.

According to Euromonitor, Horlicks operates in the malt-based hot drinks category, which is estimated to be around ~78.72 billion. The category has other brands like Cadbury Bournvita (Mondelez), Boost (GSK) among others. Growth rate in this category too has slowed down — from 13.2 per cent in 2013-14 to 8.6 per cent in 2016-17, according to Euromonitor.