Last Updated : Dec 03, 2018 09:12 PM IST | Source:

Quick take | Horlicks isn't a sweet deal but HUL has muscle power to boost nutrition biz

Unilever's interest in Horlicks is to grow its foods business that currently generates more than Rs 10,000 crore worth of revenues.

Sounak Mitra @sounakmitra
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Sounak Mitra

Finally, Unilever is buying GSK Consumer Healthcare, which will be merged with the Anglo-Dutch company’s Indian entity Hindustan Unilever. At Rs 31,700 crore, this is the biggest deal in the space in recent years. The key to this merger is Horlicks, a health food drink brand that has been in existence for more than 140 years.

Clearly, Unilever has agreed to pay too high a value for a business that generated a total business of $550 million in 2017 and 406 million pounds in the first nine months ended 30 September 2018. This is all the more so as growth in the category in which Horlicks and GSK’s other nutritional brands fall has been stagnant during the past few years. Last month, Kraft Heinz sold Complan to Zydus Wellness for Rs 4,595 crore, or four times annual sales. HUL, on the other hand, is paying more than eight times annual sales.

Besides, HUL will have to distribute GSK's over-the-counter products such as Crocin, Eno and Sensodyne for the next five years. The merger will also add around 4,000 employees of GSK Consumer Healthcare to HUL’s current strength of around 18,000 employees.

Along with health drink brands Horlicks, Boost and Viva, HUL will get three factories, 800 distributors of GSK, close to 50 percent market share in the health food drink segment that GSK’s nutrition brands have and a century-old lineage of a brand Horlicks that Indian mothers swear by.

In comparison, HUL has the largest distribution in the country with a reach of 7 million retail stores, 8.7 times Horlicks’ direct reach of 8 lakh outlets. But Horlicks is also sold across a large number of chemists’ stores which may be of some use for HUL to push its personal care products.

Unilever’s interest in Horlicks is to grow its foods business that currently generates more than Rs 10,000 crore worth of revenues.

Horlicks will face several challenges in its current form. Consumers globally as well as in India are moving away from sugary drinks rapidly and one-fifth of Horlicks is sugar. HUL will have to look at extensions of Horlicks keeping that in mind and the also keeping in mind the fact that none of Horlicks's extensions, such as noodles, biscuits and energy bars, saw any success under GSK. However, HUL's massive distribution and marketing muscle may be beneficial here.

On the other hand, GSK will have 2.4 billion pounds (or around $3 billion) of proceeds that the company can utilise to fund its planned $13-billion Novartis deal.

GSK has always been successful in selling brands at the right time and at a high price. For instance, it sold Lucozade and Ribena to Suntory for 1.35 billion pounds in 2013 and Suntory has so far been struggling with the acquired brands.

Whether HUL can make an exception with Horlicks, or it will see a similar fate, only time will tell.

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First Published on Dec 3, 2018 05:47 pm
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