Unilever Boosts health drink footprint with Horlicks buy for Rs 27,750 cr


"We've got to pivot our business to higher growth categories like the kind of stuff we did yesterday (HUL-GSK Consumer merger)", said Sudhir Sitapati, executive director of foods and refreshments business at HUL, at the parent's investor meet in Mumbai. GSK Consumer Healthcare and HUL have agreed to a share exchange ratio of 4.39 shares of HUL for every one share of GSK Consumer India, the two companies said in separate filings with the stock exchanges.

The deal, announced on Monday, will see Unilever (UL) and GSK merge their India businesses, Hindustan Unilever and GSK India.

By utilising HUL equity to fund the Indian component of the transaction, together with the synergies outlined above, Unilever shareholders are expected to benefit from returns well in excess of the cost of capital from Year 4.

Since being introduced in the 1930s, Horlicks has built up a strong following in India. The other brands covered by the deal are drinks Viva and Maltova.

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The merger, which has been approved by the boards of the respective Indian subsidiaries, but is subject to regulatory and shareholder approvals, will boost HUL's revenues to around Rs 40,000 crore, while catapulting its food and refreshments (F&R) business to around Rs 10,700 crore (28% of HUL's revenues), making it the largest listed F&R business in the country. GSK CH India's 3,800 employees will become HUL staff after the merger. A leader in the malt-based beverages segment, Horlicks holds 43 per cent market share followed by Mondelez International's Bournvita, which has around 13 per cent share. "Both Horlicks and Boost together have 60 per cent share of the category". Despite this, the category still remains under-penetrated in India. The scale of Unilever's India business-which is also its fastest growing-appears to have dimmed the chances of other suitors in the fray.

HUL finance head Srinivas Phatak told reporters he expected the business to grow at a double-digit percentage rate in the medium term, boosting both earnings and profit margins.

"The penetration of malted drinks is largely an urban phenomenon". But for that it will have to work on the pricing and packaging to reach out to the rural masses. GSK said at the time that selling Horlicks could support the funding of the Novartis buyout. Now HUL will have to further work more on increasing accessibility at right price points.