Sequoia bets on India’s snack food potential

Prakash was founded in 2004 by CEO and Managing Director Amit Kumar an his family. Kumar previously worked in the real estate, but saw an opportunity in India's consumer market for packaged potato chips. With this, the Yellow Diamond brand was born, selling a reported INR22 crore ($400,000) in its first year. This success prompted Kumar to add more products to the Prakash line, and his company now claims a nearly 40% year-on-year growth, with one million consumers consuming its products.

Sequoia's funding will reportedly be used to boost Prakash's production capacity via a new developing plant in Indore. It will also widen its range of products under its fried-snacks label Namkeen. VT Bharadwaj, managing director of Sequoia Capital, said that local food brands hold huge investment potential given the rapid growth in the snack food market.

India's snack food industry is estimated to be worth $3 billion. Within this, the organized segment - i.e. properly incorporate companies - is believed to be worth $1.5 billion and is growing at a rate of 15-20% per year. The unorganized segment is expanding at 7-8%.

"At a $3 per person per capita, consumption in India pales in comparison to US where the packaged snacks business is estimated at over $65 billion, Nikhil Vora, a managing director at IDFC Securities, tells AVCJ. "With snacks delivering strong growth for a couple of years now in a market not yet dominated by a few companies, investments are likely to bring good returns."

He adds that the snack food segment, like any fast moving consumer goods business, typically offers consistent non-cyclical growth, high return on equity and limited debt requirements. He believes that segment is now approaching sufficient scale to interest investors.

Industry participants hope that this promise of growth will directly translate into returns, with some expanding their portfolio of offerings to capitalize on growing consumption. For example, Italian confectionary company Perfetti Van Melle, which produces Mentos, has recently branched out into the salty snacks market in India.

Investors are being similarly active. In September, Motilal Oswal Private Equity Advisors acquired a 20% stake in ready-to-eat snack maker Mrs. Bector's Food Specialities for around INR70 crore ($15.7 million). That deal came two months after Carlyle invested INR102 crore ($23 million) in Tirumala Milk Products, whose products include ice cream.

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• Topics
• South Asia
• Consumer
• Early-stage
• Sequoia Capital