Key investment in bottling operations
The Bhartia family, led by Shyam and Hari Bhartia of the Jubilant Group, is in advanced talks with Goldman Sachs to co-invest in a 40% stake in Hindustan Coca-Cola Beverages (HCCB). This move would secure a significant position in Coca-Cola’s bottling arm in India, which is its fifth-largest market globally.
Investment details
Goldman Sachs plans to fund the deal through a Special Purpose Vehicle (SPV), contributing approximately ₹3,000-₹3,500 crore through a convertible preferred equity arrangement. The Bhartia family is expected to invest a similar amount. The Wall Street firm’s investment will come from its Goldman Sachs Alternatives unit, which manages various investment avenues, including private equity and real estate.
Structure and exit plan
Goldman Sachs has agreed to cap returns at a 20% internal rate of return (IRR), providing a degree of risk protection. The investment involves compulsory convertible preference shares, set to convert during HCCB’s anticipated IPO within the next 2-3 years. The IPO’s repayment structure will prioritise senior secured lenders, with Goldman Sachs positioned ahead of the Bhartia family’s equity.
Coca-Cola’s Strategic Shift
Coca-Cola India aims to adopt an asset-light model similar to PepsiCo’s. This partial sale of HCCB’s stake could help establish the company’s valuation ahead of its IPO. PepsiCo’s previous move of transferring its bottling operations to Varun Beverages resulted in substantial gains for Varun’s market value.
HCCB’s recent performance
Hindustan Coca-Cola Beverages reported a 9.2% rise in revenue to ₹14,021 crore for FY24, with net profits surging by 247% year-on-year. The company plans a $1.5 billion investment over five years to expand bottling capacity and build new plants in Gujarat and Madhya Pradesh.
Financing strategy
The Bhartia family aims to avoid high leverage by raising ₹3,000-₹3,500 crore in debt from mutual funds, which provide lower-cost financing compared to traditional bank loans. After exploring various financing options, the family chose a long-term partner over short-term funding.
