Horlicks controls around a half of India’s health food drink market and the Indian mother still swears by the brand’s legacy. But despite the added distribution muscle, Horlicks might just end up pressuring Unilever’s financials
Unilever has emerged as top bidder for Horlicks, the malt-based health food drink brand 72.5 percent owned by GlaxoSmithKline Consumer Healthcare, outbidding Nestle, according to a report by Reuters.
While the value of Unilever’s bid is yet to be known, going by previous estimates, Horlicks and GSK’s other nutrition products together could fetch at least $4 billion. If GSK indeed manages to sell its consumer business for that amount, it will be an expensive acquisition for Unilever because the GSK portfolio of brands have not been growing in recent times.
Recent deals in the segment have fetched much lower valuations. Last month, Kraft Heinz sold Complan (Horlicks’ rival in India) to Zydus Wellness for Rs 4,595 crore, or four times annual sales. At $4 billion, GSK would be valued around 7.3 times annual sales, considering that Horlicks and other nutrition brands that GSK is selling generated a total sales of $550 million (Rs 3,900 crore) in 2017. Even at the $3.4 billion purchase price, as reported by some media outlets, the valuation would be 6.2 times annual sales. Though Horlicks has a presence across Bangladesh, Sri Lanka, Nigeria and Malaysia, around 85 percent of its revenues accrues from India.
One of the reasons why Unilever is interested in buying Horlicks, even at a higher valuation, is the Anglo-Dutch company’s enhanced focus on the food business in India. Hindustan Unilever has already generated more than Rs 11,000 crore from packaged foods in FY18.
Despite Horlicks’ strong brand and lineage, it will come with its own baggage. Horlicks, like the health drink category, has not been growing for quite a few years. To be sure, Unilever can potentially change this using its vast distribution channel, including the network of women sales agents across rural India. It also has the largest distribution reach of more than six million retail outlets. The challenge would remain because about one-fifth of Horlicks is sugar and globally, including India, people are moving away from sugary drinks.
In coming years, it would be tougher to get Horlicks growing unless Unilever reinvents the product and positions it as something else but not a health food drink. But Unilever will have to keep in mind that none of Horlicks brand extensions have worked so far.
One for the reasons why Horlicks had been a success is the state of undernourishment in India, but lately diabetes is on the rise, with more than 10 percent of the population being affected. A sugar tax is already being levied in some countries including the UK, and it may not be far when India may start thinking of imposing one. In any case, a different form of sugary drink, colas, are not growing either. That’s why cola companies are introducing more energy drinks and fruit-mixed beverages.
What Horlicks would bring to Unilever in India is its reach of 3.3 million retailer outlets, including a strong network of chemist shops, with a focus on eastern and southern markets. True, Horlicks controls around a half of India’s health food drink market and the Indian mother still swears by the brand’s legacy. But despite the added distribution muscle, Horlicks might just end up pressuring Unilever’s financials.So, unless Unilever has a few tricks under its sleeves to turn the Horlicks acquisition into a success story, it will just be following the path of Suntory that bought GSK’s Lucozade and Ribena for 1.35 billion pounds but is still struggling.