Kraft: Competition heating up? - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Kraft: Competition heating up?

Sep 10, 2009

We all are familiar with Cadbury through their Dairy Milk, Perk and five star chocolates and Bournvita. However, many of us may not be familiar with Kraft Foods (Kraft). Kraft headquartered in US and founded in 1903 by James L. Kraft is the world's second largest processed foods company after Nestle. The company has a portfolio of biscuits, milk products, ready-to-drink beverages and snacks foods. Kraft Foods has a proven track record of successfully completing and integrating strategic combinations to build iconic brands and multi-national businesses, including the acquisitions of Danone's biscuit business in 2007 and Nabisco in 2000. In 2008, Warren Buffet acquired an 8% stake in this company. Cadbury bid
Recently, Kraft bid for Cadbury at GBP10 bn which translates to 745 pence per share. The bid was rejected by Cadbury's as it felt that Kraft had not valued the company sufficiently. However, the market believes that Cadbury would be a great fit for Kraft as this acquisition would add more high-margin products, such as chocolate and chewing gum, to its portfolio. The market also believes that at the right price, shareholders of Kraft will benefit from this acquisition for many years. At this point, there are rumours of Hershey and Nestle are putting up a joint bid for Cadbury while Kraft is working on its follow-up bid. The market believes that the fair price should be closer to 850 pence per share.

What does a possible takeover of Cadbury by Kraft mean for India?
Kraft has stated that one of the reasons for this acquisition is to have scale in developed markets like India. Naturally, it can be argued that a new entrant will find it easy to capture market share in India by riding on the modern retail band wagon. However, in our opinion this may not be a cake walk. Modern retail makes up only 10% of the market as of now and is already very competitive with a large number of players vying for shelf space. The market for biscuits is rules by Britannia, Parle and ITC, for milk products Amul and Nestle, snack food by Pepsi and Haldiram, ready-to-drink beverages by HUL, Pepsi, Coke, Tata Tea and Nestle with a number of local players also present in all these categories. While the strategy of the company would be to piggy ride on Cadbury's distribution network, it will have to invest heavily to make any sort of dent in the market. We have witnessed in the recent past the kind of investments ITC had to make when it launched Sunfeast biscuits in spite of being an established player in India. While it is wrong to assume that Kraft will not be able to establish itself in India, as it has deep pockets and has shown the ability to establish itself in new markets using innovative promotion, we for now would like to follow the bidding war which promises to heat up.

Equitymaster requests your view! Post a comment on "Kraft: Competition heating up?". Click here!

2 Responses to "Kraft: Competition heating up?"

niraj kumar

Sep 16, 2009

company should enter in the indian market with acquisition policy which wii give to upper hand to start the buisness in INDIA.come up with the core product and which is also use frequently in india.use also aggresive advertisement policy.

Like 

Raj

Sep 10, 2009

They may look at Agrotech foods with just a market cap of 500 crore..Kraft can easily acquire shares in the company

Like 
  
Equitymaster requests your view! Post a comment on "Kraft: Competition heating up?". Click here!

More Views on News

What Happens if ITC Hives off ITC Infotech? (Views On News)

Nov 20, 2021

The cigarette to hotel conglomerate is reportedly mulling the demerger of its software business at a valuation of around Rs 250 bn.

What Sparked an 8% Rally in ITC Shares Today? (Views On News)

Sep 16, 2021

ITC did not participate in the rally after the second wave and continued to underperform its peers. Is this about to change?

ITC 2020-21 Annual Report Analysis (Annual Result Update)

Sep 6, 2021 | Updated on Sep 6, 2021

Here's an analysis of the annual report of ITC for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of ITC. Also includes updates on the valuation of ITC.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

What Led to the Massive Surge in the Stock of Jubilant FoodWorks? (Views On News)

Aug 18, 2021

Jubilant FoodWorks hits new high, surges 35% in a month on growth prospects.

More Views on News

Most Popular

Growth vs Value Investing

It's time to rethink value versus growth debate and the way to play markets in the coming decade.

Infosys vs TCS: Which is Better? (Views On News)

Nov 26, 2021

In the post pandemic era, the top two IT companies in India are fighting to capture the growing demand for IT.

This Multibagger Stock Zooms 20% After Dolly Khanna Buys Stake (Views On News)

Nov 24, 2021

Shares of this edible oil company zoomed over 50% in three days after ace investor bought around 1% stake.

Don't Sell these Stocks if the Market Falls (Profit Hunter)

Nov 17, 2021

These are the 3 types of stocks that you should not sell in a market crash.

How to Find Your Next 10-Bagger in this Market (Profit Hunter)

Nov 19, 2021

The #1 make or break factor in your portfolio you shouldn't ignore.

More

Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

ITC SHARE PRICE


Nov 30, 2021 (Close)

TRACK ITC

COMPARE ITC WITH

MARKET STATS