Identifying Undervalued Targets in India’s Consumer Goods Sector

India’s consumer goods sector is a dynamic arena, teeming with growth opportunities and intense competition. For senior leaders and decision-makers eyeing strategic mergers and acquisitions (M&A), the ability to identify undervalued targets is paramount. As a senior hybrid consultant, I see immense potential in this market for those who employ a nuanced, multi-disciplinary approach to M&A, leveraging finance, legal, technology, and operations expertise to uncover undervalued targets.

Industry Overview & M&A Context for Undervalued Targets

India’s consumer goods and Fast-Moving Consumer Goods (FMCG) sector is a cornerstone of the economy, projected to reach USD 220 billion (approximately ₹18,260 crore at 83 INR/USD) by 2025, growing at a CAGR of 14.9% from USD 110 billion in 2020. It contributes significantly to GDP and employment, driven by a massive consumer base. The sector spans personal care (50% of market share), healthcare (31%), food and beverages (19%), and the rapidly growing Direct-to-Consumer (D2C) segment. Urban markets drive 65% of revenue, while rural areas, contributing 35%, are witnessing faster growth due to rising consumption and digital penetration. The value chain—spanning raw material sourcing, manufacturing, distribution, and retail—is evolving with e-commerce and quick commerce platforms like Blinkit.

Key trends are reshaping the M&A landscape and creating fertile ground for acquiring undervalued targets:

• Rapid Rise of D2C and Digital-First Brands: Agile players like Mamaearth leverage digital channels to build direct consumer relationships, carving out niche markets and making them attractive undervalued targets due to their growth potential.
• Omnichannel Transformation and Supply Chain Disruptions: Companies are integrating online and offline channels while navigating supply chain volatility (e.g., rising palm oil costs), making firms with robust logistics undervalued targets.
• Competitive Intensity Between MNCs and Domestic Players: Global giants like Hindustan Unilever compete with domestic brands like ITC, driving acquisitions of undervalued targets to expand portfolios or enter niche markets.
• Strategic Consolidation and Regional Brand Acquisition Drives: Larger players acquire regional brands with strong local recall, such as ITC’s acquisition of Yoga Bar, identifying undervalued targets for immediate market access.

1. Recent Developments (as of June 2025) Impacting Undervalued Targets

• The M&A environment in India’s consumer goods sector is shaped by policy changes and market dynamics that create new opportunities to identify undervalued targets:

1. PLI Scheme Expansion and Government Incentives: The Production Linked Incentive (PLI) Scheme, with USD 976 million allocated in 2023–24 and expanded in 2025, fosters domestic manufacturing in food processing and essential goods. This makes undervalued targets with production potential attractive for synergistic acquisitions.
2. Budget 2025 Measures Impacting Acquisition Costs: The Union Budget 2025–26 introduces MSME tax concessions and lower import duties, reducing acquisition costs for small consumer goods firms. A new ₹10,000 crore Fund of Funds for startups supports the financial health of potential undervalued targets.
3. ESG Compliance and CPCB/FSSAI Mandates Creating Valuation Gaps: From April 1, 2025, mandates on recycled plastic content and FSSAI’s amended packaging regulations (allowing recycled PET for food contact) create valuation gaps. Companies with early-stage ESG efforts but lacking certifications are undervalued targets ripe for compliance uplift.
4. Funding Shift to Profitability: Post-2024 market corrections have shifted VC/PE focus to profitability over top-line growth. High-potential acquisitions with strong unit economics and recurring revenue are gaining attention.
5. Increased VC/PE Scrutiny: With PE/VC investments down 68% year-on-year in May 2025 (USD 2.4 billion), investors prioritise undervalued targets with robust fundamentals, such as low customer acquisition costs (CAC) and scalable operations.

2. Key Challenges in Identifying Undervalued Targets

Identifying undervalued targets in India’s consumer goods sector presents complexities:

• High Competition and Information Asymmetry: Fragmented regional markets and limited public data create information asymmetry, complicating target identification.
• Lack of Formal Reporting: Many small consumer brands lack audited financials, masking their true value and making due diligence critical to uncover undervalued targets.
• Pricing Distortions: Overhyped D2C brands often have inflated valuations due to unsustainable CAC models, obscuring High-potential acquisitions with stronger fundamentals.
• Regulatory Non-Compliance Risks: Hidden FSSAI, GST, or CPCB compliance issues, often uncovered only through rigorous due diligence, can erode the value of undervalued targets if not addressed.
• Overlooked IP or Under-Leveraged Assets: Family-run FMCG businesses often possess undocumented intellectual property (IP) or underutilised assets, making them undervalued targets with significant upside.

3. Strategic Framework for Identifying Undervalued Targets

A hybrid consulting lens—integrating financial, legal, technological, and operational expertise—enables precise target identification of undervalued targets:

• Financial Filters:

1. Low EV/EBITDA Multiple: Target companies trading at lower multiples than peers, indicating undervalued status.
2. Declining CAC: Signals efficient marketing and strong product-market fit.
3. Improving Unit Economics: Reflects per-unit profitability and operational efficiency.
4. High Recurring Revenue: Subscription-based D2C models or loyal customer bases ensure stable revenue.

• Operational Metrics:

1. Supply Chain Efficiency: Robust sourcing and distribution networks indicate scalability.
2. Gross Margin Consistency: Reflects pricing power and production efficiency.
3. Underutilised Capacity: Manufacturing or distribution assets with untapped potential offer upside.
4. Working Capital Stretch: Efficient working capital management signals operational health.

• Legal Due Diligence:

1. Pending FSSAI or GST Issues: Investigate compliance risks to avoid post-acquisition liabilities.
2. Outdated Distribution Contracts: Renegotiable contracts can improve margins.
3. IP/Title Risks: Ensure clear ownership of trademarks and formulations.

• Technology Stack:

1. Legacy Systems or No DMS/CRM: Indicates scope for digital transformation, enhancing value.
2. Room for Transformation: Outdated tech suggests efficiency gains post-acquisition.

• ESG Readiness:

1. Early-Stage Sustainability Efforts: Businesses with nascent ESG practices but lacking certifications are undervalued targets, offering opportunities for brand equity growth.

4. M&A Deal Structuring Insights for Undervalued Targets

• Customised deal structures maximise value and mitigate risks for acquiring undervalued targets:

1. Earn-outs Linked to Growth: Tie payments to post-acquisition performance, aligning incentives.
2. Royalty-Based Models: Compensate IP-driven brands via future sales royalties, minimising upfront costs.
3. Strategic Minority Stakes: Acquire stakes with control levers (e.g., board representation) for influence without full acquisition.
4. Joint Ventures with Local Partners: Leverage local expertise for regional brand acquisitions.
5. Asset-Light Acquisitions: Focus on brands/IP, using third-party logistics for scalability.

Illustrative Examples of Undervalued Targets

Example 1 – Regional Brand Turnaround: Maha Bhog, a mid-sized packaged food brand in Maharashtra, had strong local recall but stagnant sales due to outdated marketing. Acquired at a low 6x EV/EBITDA multiple, the buyer implemented a modern DMS, e-commerce platform, and targeted digital marketing. This led to 40% revenue growth in 18 months, proving its undervalued target status.

Example 2 – ESG Arbitrage: Verde Organics, a small personal care brand, used eco-friendly ingredients but lacked CPCB certifications, resulting in a low valuation. A sustainability-focused FMCG conglomerate acquired it, secured green labels, and implemented supply chain traceability. This boosted valuation by over 50% in 12 months, showcasing ESG-driven value creation from an undervalued target.

Conclusion

India’s consumer goods sector offers fertile ground for strategic M&A, particularly in identifying undervalued targets. By applying a hybrid consulting approach—examining financial health, operational efficiency, legal compliance, technological capabilities, and ESG readiness—leaders can uncover hidden gems. These undervalued targets, when optimised, deliver transformative growth, market expansion, and long-term value creation, positioning acquirers for category leadership.

About LawCrust

LawCrust Global Consulting Ltd. delivers cutting-edge Hybrid Consulting Solutions in Management, Finance, Technology, and Legal Consulting to ambitious businesses worldwide. Recognised for our cross-functional expertise and hybrid consulting approach, we empower startups, SMEs, and enterprises to scale efficiently, innovate boldly, and navigate complexity with confidence. Our services span key areas such as Investment Banking, Fundraising, Mergers & Acquisitions, Private Placement, and Debt Restructuring & Transformation, positioning us as a strategic partner for growth and resilience. With an integrated consulting model, fixed-cost engagements, and a virtual delivery framework, we make business transformation accessible, agile, and impactful.

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