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Kraft's Sticky Situation in India

Kraft Foods ( KFT ) is looking to penetrate the lucrative Indian market. One of its initiatives is to leverage the brand equity of Cadbury in India to sell its own flagship Oreo cookies, as well as the powdered beverage Tang. The cookie market in India is around $2 billion and growing at an annual growth rate of 20%. Kraft is the world's second largest food and beverage company after competitor Nestlé ( NSRGY ). It also competes with PepsiCo ( PEP ), General Mills ( GIS ) and Kellogg ( K ) in this market.

We estimate that chocolate, candy & gum account for around 31% of our $32.58 price estimate for Kraft's stock , which slightly ahead of the current market price. Snacks contribute another 19% to our price estimate while beverages and grocery add 14% each.

Kraft Faces Regulatory Pressure

However, Kraft is facing regulatory challenges from the SEC. The SEC is investigating Kraft on charges related to Cadbury's dealings with Indian officials. The SEC is seeking details regarding "dealings with Indian governmental agencies and officials to obtain approvals related to the operation of that facility," according to Kraft's SEC filing.

The SEC, through the Foreign Corrupt Practices Act, prohibits companies from paying bribes to foreign officials to keep/obtain business, permits or licenses.

Kraft's Chocolate, Candy & Gum Market Share

Kraft's chocolate candy and gum market share increased considerably after the acquisition of Cadbury. We expect Kraft to gain more market share during our forecast period with Cadbury's strong presence in emerging markets driving the growth.

However, if this investigation leads to an unfavorable outcome that might hinder Kraft's growth in India or similar issues were to rise in other countries relating to Cadbury or Kraft, there could be downside to our forecasts.

For example, if the chocolate, candy & gum market share is 200 basis points below our base forecast, then it would result in a downside of around 5% to our current price estimate for Kraft's stock.

See our full analysis and$32.58 price estimate for Kraft's stock

*Editor's Note: We have updated details regarding the SEC investigation to better reflect that this inquiry relates to legacy Cadbury operations. See further information in Kraft's 10-K.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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