Coca-Cola Fair Value $75: Pushing Further into Rural India

Coca-Cola (NYSE:KO) looks keen to penetrate rural India as the region offers immense untapped potential for growth. According to Joseph Tripodi, Coca-Cola EVP and Chief Marketing Officer, there are 700 million people in India who presently live in rural area. Coca Cola believes this represents a huge opportunity to grow here. The company projects almost a billion people will enter the middle class in the next decade in India and almost 800 million people will move to the cities. ^[1] The beverage giant is very bullish on India as it sees the scarcely penetrated rural market and quickly growing middle class as the key drivers for growth. Coca-Cola competes with companies like Pepsi (NYSE: PEP) and Dr. Pepper Snapple Group (NYSE:DPS).

Our price estimate for Coca-Cola is $75, implying roughly 10% upside to the current market price.

See our full analysis for KO

India Houses Immense Opportunities

Coca-Cola has invested more than $1 billion on its Indian operations. It has consistently reported double digit growth in India for quite some time. In order to reach prospective customers in rural India, it is working on solving supply chain issues. It is also planning innovative ways to penetrate in the interiors keeping into consideration local tastes and its global brands on offer.

We also wrote recently about its ales strategy in Transactions Over Volume in India, Coke’s Growth Mantra

We highlighted that focusing on transactions is a well thought out strategy, especially for emerging nations like India, which have an ever growing middle class and a demographic profile that has a higher proportion of youngsters.

We believe this strategy would be successful, briefly discussed below:

• Coca-Cola is working on offering more affordable packs as that helps in building more transactions. According to Joseph Tripodi, Coca-Cola’s EVP and Chief Marketing Officer, the company has been trying to bring entry level pricing to the Rs 5 mark in India. This would help the beverage giant to penetrate middle class segment and younger generation in these markets.
• More affordable packs also ensure a strong presence in homes. This also justifies with Coca-Cola’s plans to penetrate rural India. Focusing on driving volumes approach would fall flat if it is keen to penetrate emerging economies like India and China. There is a pent up demand for affordable and diverse offerings in these economies.

We believe developing strategies to penetrate rural India would surely prove a strategic fit for Coca-Cola in the long term.

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1. See: Coca-Cola to Focus on Meeting Demands of Rural India, Economic Times [↩]