McCormick Completes Kohinoor Deal - Analyst Blog
September 12 2011 - 7:00AM
Zacks
McCormick & Company, Inc. (MKC) has
consummated its joint venture with Kohinoor Foods Ltd., India to
market and sell basmati rice and food products in India. The
venture was announced in June 2011 and will now be named as
Kohinoor Specialty Foods India Private Ltd.
Based in New Delhi, India, Kohinoor Foods Ltd. is one of the
leading manufacturers and marketers of Basmati rice, which is a
premium and naturally flavored long-grained rice used in authentic
Indian cuisine. The Kohinoor brand is one of the top national
brands in the basmati rice category in India and also has a
significant international presence in countries such as the U.S.,
the U.K., Dubai, Canada, Japan, Australia, Singapore and several
European countries.
McCormick had invested a total of INR 5.2 billion ($113 million)
in the deal and thus commands an 85% interest in Kohinoor Specialty
Foods India Private Ltd. Going ahead, McCormick will also bear
approximately $4 million of fees and other costs in the fourth
quarter of 2011 related to the deal, which would reduce earnings by
3 cents per share.
However, McCormick expects the joint venture sales to be
approximately $85 million in the first year, and will be accretive
to McCormick’s earnings per share in 2012.
Satish Rao, who has been associated with McCormick for the past
16 years, will act as the Managing Director of Kohinoor Speciality
Foods India Private Limited. In addition, the Kohinoor joint
venture will have approximately 275 employees and a modern
production facility at Bahalgarh, Haryana, India.
The joint venture is a part of McCormick’s strategic business
plan to expand sales in emerging markets. Including India,
McCormick expects emerging markets to contribute approximately 12%
of total sales by 2015, reflecting an increase of 33.3% from 9% in
fiscal 2010. The Kohinoor brand of products is an ideal fit for the
company’s portfolio.
Both the companies are expected to significantly benefit through
this new joint venture. McCormick believes that Kohinoor has
developed a fast-growing, profitable business, with vast expertise
in their products and an extensive distribution network in the
Indian retail market. McCormick plans to develop and launch new
products, penetrate potential and under-served markets and thereby
expand in the foodservice channel in India.
McCormick has a decade-long presence in India. The company first
partnered with A.V. Thomas Group in 1994. AVT McCormick Ingredients
Private Limited has grown into a leading supplier of cleaned, steam
sterilized, ready to use spice ingredients for the global
market.
In 2010, McCormick acquired a 26% interest in Eastern Condiments
Private Limited that is a leading brand of spices, seasonings and
other related food products in India and the Middle East.
Based in Sparks, Maryland, McCormick is a leading manufacturer,
marketer and distributor of spices, seasonings, specialty foods and
flavors to the entire food industry, across the globe. The
company’s key sales, distribution and production facilities are
located in North America and Europe. Furthermore, the company has
facilities in Mexico, Central America, Australia, China, Singapore,
Thailand and South Africa.
McCormick which competes with ConAgra Foods,
Inc. (CAG) and Krafts Food Inc. (KFT)
currently holds a Zacks #4 Rank which implies a short-term (1-3
months) Sell rating.
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