Horlicks acquisition to propel HUL ahead of rivals Nestle, Britannia

Unilever trumped rival Nestle to emerge the sole bidder for the business, valued at $4 billion

Unilever’s aggressive bid for GlaxoSmithKline’s (GSK) nutrition business in India, including the popular Horlicks brand, will put the company on top of the packaged foods pecking order in the country if the deal fructifies. 

On Wednesday, Unilever trumped rival Nestlé to emerge the sole bidder for the business, valued at $4 billion. The Anglo-Dutch major is making a $3-3.5 billion cash offer for GSK’s 72.5 per cent holding  in the Indian company GSK Consumer Healthcare, which is on the block as part of a strategic review. Brands Horlicks, Boost, Maltova, and Viva are also part of the review process.

Based on 2017-18 (FY18) annual numbers compiled by BS Research, Unilever’s India unit, Hindustan Unilever, had a revenue of Rs 63.8 billion in the food and refreshment segment. If this is added to GSK Consumer’s FY18 turnover of Rs 43.2 billion, the combined figure works out to Rs 107 billion, ahead of Nestlé’s turnover of Rs 100 billion (for calendar year 2017) and Britannia’s Rs 99 billion for FY18. 

ITC’s foods business, on the other hand, was nearly Rs 87 billion, according to its FY18 annual report, implying that HUL will get into the centre of the food universe with the deal.

“The acquisition will put HUL in the leading position as far as food companies go (in the country), indicating that the category is of great significance to it. In a way, this marks a shift from what it was doing earlier, where the emphasis largely was on home and personal care,” Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss, said.

While HUL built a large food business over two decades ago on the back of mergers and acquisitions, the last few years had seen it restrict its presence to a few categories. That is now changing as growth prospects within the category increase. 

“Packaged foods in India is growing, thanks to higher disposable incomes, rapid urbanisation and changing lifestyles,” said G Chokkalingam, founder and managing director at Equinomics Research. “There is also a new consumer class that is emerging in India, which is ready to try out newer products, giving a boost to packaged food and beverage companies,” he said.

In June, HUL announced it was bringing its food and refreshment portfolios together in line with global strategy as well as with an eye on increasing scale. 

In August, the company acquired the ‘Adityaa Milk’ ice cream brand from Karnataka-based Vijaykant Dairy, aimed at getting a larger pie of the domestic ice cream market. The company already sells ice creams and frozen desserts under the Kwality Wall’s, Magnum, and Cornetto brands in India. These products along with food brands Kissan and Knorr and beverage brands Bru, Brooke Bond Red Label, 3 Roses, Lipton Tea, Taaza, and Taj Mahal Tea contribute 18 per cent to HUL’s top line, sector analysts said. 

“If GSK gets merged with HUL after the acquisition, then the combined turnover from food and refreshment for HUL will increase to 27 per cent, which is a 900 basis point jump,” Roy said.

Though HUL declined comment on the Horlicks deal, sector experts said the company could continue making small, bolt-on acquisitions in India to fill gaps in its foods business in the future. 

“Health food drinks is a relatively new area for HUL, but it has an interest in nutrition at a broader level and could use the acquisition to its advantage,” said Sachin Bobade, senior research analyst at brokerage Dolat Capital. In the last few years, health food drinks has been slowing thanks to the emergence of newer alternatives.