 "Slow sales growth driving HUL to make acquisitions, say analysts")
The country's largest fast-moving consumer goods (FMCG) company, Hindustan Unilever did the unthinkable on Thursday when it announced it was acquiring hair oil brands Indulekha and Vayodha from the Kerala-based Mosons Group.
While speculation about the deal had been doing the rounds for a while, its final announcement was a signal that HUL was back in the M&A market. It may be recalled that HUL grabbed much of the headlines through the 1990s and early 2000s for a spate of acquisitions.
The period has been famously described as HUL's 'M&A decade', for buys such as Kissan and Dollops Ice-cream (in 1993), Tata Oils Mills Company and Kwality Ice-Cream (in 1994). There were mergers as well, such as Brooke Bond, Lipton India and Ponds into HUL between 1994 and 1996, and the acquisition and consequent merger of Modern Foods between 2000 and 2006.
HUL recently offloaded the Modern bread and bakery business to private equity major Everstone in a Rs 250-crore deal.While the divestment was part of HUL's decision to exit non-core businesses, it is its re-entry into hair oils, which it had exited in 2006 with the sale of Nihar to Marico, that has caught the attention of many.
Analysts say HUL is expected to take more such bold bets as it seeks growth in a market that is sluggish.
G Chokkalingam, founder and managing director, Equinomics Research & Advisory, says, "Both FMCG and information technology have traditionally delivered double-digit sales growth, which is not happening now. For the last six quarters, the scenario has been quite bad, compounded by a poor monsoon as well as a general economic slowdown. This has affected growth for firms both in urban and rural markets. The result is that these companies have to look for growth through the inorganic route, since organic growth is no longer pronounced."In the last two years, HUL's annual topline growth has been hovering between eight and 10 per cent compared to the 12-16 per cent sales growth it saw earlier.
Naveen Kulkarni, co-head, research, PhillipCapital India, says it will be increasingly difficult for HUL to derive high organic sales growth as the base effect kicks in. HUL touched Rs 30,000 crore in turnover in 2014-15. "With the market environment not having improved, firms such as HUL that were conservative on the M&A front earlier are now shedding their inhibitions," Kulkarni says.
While steep valuations remain a challenge, HUL, say experts, is also taking a cue from mid-tier rivals such as Godrej Consumer, Marico, Emami and Dabur that expanded their topline in the last few years using the inorganic route. Godrej Consumer's managing director, Vivek Gambhir in a recent conversation with Business Standard said his firm would continue to scout for acquisitions both in domestic and international markets.
