Attention has been focused on the Indian bottled water sector over the last week or so as speculation has mounted that Danone and a number of other companies are looking to expand their presence in this growing market through acquisition. Ben Cooper reports.

Gossip and speculation is pretty much a constant feature of the Indian corporate world. The juxtaposition of large private companies, aspiring wealthy entrepreneurs and multinationals looking to increase their foothold in one of the world's four most important developing markets makes for plenty of rumour-mongering.

Often all the tittle-tattle comes to nothing but this is unlikely to be the case in the bottled water market which has been the subject of rabid takeover talk over the past week or so, and not for the first time.

Last week, it was reported that French food and drinks combine Danone was in talks with Delhi-based DS Group, which owns the Catch spring water brand, and Ahmedabad-based Sheelpe Enterprises, which markets Aava mineral water.

In this instance, India's sometimes rather imaginative business press - another factor behind the high prevalence of corporate gossip - appears to be on the money. Both Ravinder Kumar, chairman of DS Group, and Behram Mehta of Sheelpe confirmed in the media that Danone had made approaches, but gave no precise details. Danone itself remained tight-lipped.
 
The growing INR20bn (US$495m) Indian bottled water market has been attracting interest from companies within and outside India for some time. However, while offering plenty of growth potential - with Indian consumers also now gaining a taste for specialty, enhanced, flavoured and functional waters - the Indian bottled water market is highly competitive and low-margin.

There are around 1,200 water bottling plants in the country, and more than 200 brands, about 80% of which are local. Analysts suggest that the long-term prospects for the market are extremely good, given rising personal income and consumer interest in health and wellness. However, particularly in light of the low returns the sector currently offers, analysts also suggest that any investor has to be prepared for the long haul and have relatively deep pockets.

That said, a move by Danone to increase its presence in this expanding market would not come as a surprise. It has been suggested that its prime target is the Catch brand which the French company would aim to position between its premium-priced imported brand Evian, which sells around 1.5m bottles in India through an import deal with Narang Hospitality Services (NHS), and mainstream brands.

DS Group may also be the more amenable target. The company has reportedly been seeking a strategic investor for its food and water businesses, and Kumar had earlier told the Indian business newspaper Economic Times that DS was open to equity participation from either domestic or international companies.

Launched in 1999, Catch has been described as the "Indian Evian". It is priced at a premium to mainstream brands like Bisleri but is a spring water rather than a purified one which sets it apart from many of the other players.

Danone has also been linked in the past with a move for the market leader Bisleri, which itself once again became the subject of takeover speculation last week. It was reported that Danone had made another move for the company, with Coca-Cola and the consumer goods arm of Indian software group Wipro also in talks to buy the market leader.

Although Bisleri has been the subject of such speculation on a regular basis and was rumoured to be on the market last year, chairman Ramesh Chauhan firmly refuted any suggestion that the company was in takeover talks. "There are a lot of people who have shown interest in Bisleri as a brand and have been chasing me for some time now because Bisleri is the only profitable brand and is dominating the water industry," he said in a statement. "I have no intention of selling the brand or any stake in my company."

While Bisleri, something of a brand-marketing success story, would be a tempting target for many investors, Coca-Cola may be an unlikely bidder for the company at this stage. The US company already has the Kinley water brand in India and is set to launch its Bonaqua brand there through its Indian arm Hindustan Coca-Cola Bottling (HCCB).

To say that Coke has its hands full with regard to the Indian water market at present would be something of an understatement. The launch of Bonaqua will give it a multi-brand presence in the market, and while it is possible that Bonaqua would end up competing with Kinley, this may not worry the soft drinks giant all that much. It is looking to buy out the rights to Kinley from local bottlers but so far the bottlers have declined to sell.  According to some reports, Coke is launching Bonaqua to put pressure on them.

Coke's motivation for buying out the Kinley franchisees' rights stems from precisely the same factors that are attracting other investors to the bottled water market. Growing consumer spending power and retail expansion will foster further growth in the market and Coke is thought to be keen to control the distribution of Kinley more directly.

One name that was largely absent from the recent round of speculation is Nestlé. But some reports did link the Swiss group with a move for Bisleri. Nestlé is thought to be keen to re-establish some sort of presence in the market after both its Pure Life and San Pellegrino brands failed take off in India.

Add to this heady mix the substantial presence of Tata Tea, which recently acquired a 45% stake in Mount Everest Mineral Water which owns the Himalaya brand, beating off a challenge from Nestlé in the process, and the bottled water sector in India is not short of interest. It is perhaps little wonder that the category is attracting so much attention from the Indian scribblers.