Mondelez International, Inc. (MDLZ - Analyst Report) recently announced plans to invest $190 million to build the largest chocolate manufacturing plant in India as well as in Asia pacific.
Mondelez runs its business in India through Cadbury India Ltd. which was acquired as part of Mondelez’s purchase of Cadbury in Jan 2010. Cadbury India Ltd. already has six manufacturing plants located in the states of Himachal Pradesh, Maharashtra, Karnataka, Madhya Pradesh and Andhra Pradesh.
The latest plant will be located in Andhra Pradesh and will have an annual production capacity of 250,000 tons. The first phase of the project is expected to be finished in 2015. This investment is part of Mondelez’s Supply Chain Reinvention Plan which is expected to generate $1 billion through productivity improvements and cost savings over the next three years.
Food/beverage companies are increasingly investing in developing and emerging markets like India, China and Brazil which boast significant growth potential due to their relatively low per-capita consumption. Another reason is the burgeoning middle-class population with rising income levels which in turn is increasing the demand for convenience food and beverages.
Mondelez has a strong presence outside North America. Cadbury’s vast distribution networks in developing markets such as India, Brazil and Mexico opened new sales channels for Mondelez post acquisition. The company has been seeing strong growth in emerging markets ever since. Revenues grew in a high-teen range in India while Brazil was up in mid teens in the most recently reported quarter (third-quarter 2013).
Last month, food/beverage giant, PepsiCo, Inc. (PEP - Analyst Report) announced plans to spend, along with its partners, around $5.5 billion to expand its presence in India by 2020. Another beverage giant, The Coca-Cola Company (KO - Analyst Report) told Bloomberg in early November about its plans to invest more than $4 billion in China from 2015 to 2017.
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The Zacks Rank #3 (Hold) company, previously known as Kraft Foods, Inc., spun off its North American grocery business into an independent company, Kraft Foods Group (KRFT - Analyst Report), in October last year. Ever since, Mondelez has been under pressure and posted disappointing results.
Last month, Mondelez reported dismal third-quarter 2013 results, managing to meet the Zacks Consensus Estimate for earnings but missing the same for revenues due to weak performance in China. The company also lowered its organic revenue guidance for 2013 as the present headwinds are expected to continue.