Horlicks buy-out could make HUL the biggest Indian food company

Unilever's likely acquisition of the nutrition business of Glaxosmithkline could give a huge fillip to the FMCG giant's food ambition in India, which till date has never taken off. Apart from its fairly robust tea and coffee business, most of its food bets are either fledgling or have failed.

The company had acquired Modern Foods in 2000, which it eventually sold to Nimman Foods (backed by Everstone Group) in 2016. Its staples brand, Annapurna, also didn't take off. Food and refreshments contribute 18 per cent of the revenues of HUL, whereas the proportion of food and beverage for Unilever globally is 41.7 per cent. "If Unilever Plc acquires this business, our sense is the same will be merged with HUL. Once this happens, the overall revenue pool for HUL for foods and refreshments will increase to 27 per cent," points out Abneesh Roy, Senior Vice-President (Institutional Equities Research), Edelweiss Securities. Roy says that this acquisition could make Unilever India one of the largest food and refreshment companies in India.  "GSK's EBIT margins have been consistently higher than HUL's food and refreshment business. In FY18, it was higher by 340 bps. Thus GSK will be margin accretive to HUL's F&R business."

Food industry experts believe that getting GSK's nutrition business into its fold will give HUL a strong anchor brand, which it could never create on its own. "Horlicks is an extremely powerful brand and will help HUL's food business immensely for its next level of growth. HUL till date doesn't have a strong food brand," says Kannan Sitaram, Venture Partner, Fireside Ventures.

Raghu Vishwanath, MD of brand valuation company, Vertebrand, says that HUL should ride on the brand equity of Horlicks without tinkering with it. "Horlicks will grow incrementally through the distribution muscle of HUL. The brand should be left as it is for a while as it already enjoys an extremely strong equity."

Vishwanath says that HUL will borrow equity for its food business from Horlicks and not vice-versa.