Horlicks: A potential nutrient fit for select FMCG giants

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26 Aug, 2025 12:21

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Anubhav SahuMoneycontrol Research

Two of four top brands in the Indian Health food drinks (HFD) market cornering 56 percent of market share combined are up for sale. This has raised questions on the growth prospects of the category, and in particular, on whether it makes sense for a company to sip on Horlicks?

We believe while the category itself undergoes a change, even the existing business of GSK Consumer holds value for other FMCG players and there is a scope for operational synergies

GSK reviews Horlicks

Recently, GlaxoSmithKline Plc. (GSK) initiated a strategic review of Horlicks and its other consumer healthcare nutrition products, partially to fund its USD 13 billion buyouts of Novartis’s stake in the consumer healthcare joint venture. As 85-90 percent of Horlicks and other nutrition products sales are generated in India, the strategic review includes an assessment of GSK’s 72.5 percent shareholding in the India unit (GSK Consumer).

Kraft may chuck off Complan

Worry over the growth dynamics of the Health Food Drinks (HFD) segment has aggravated by the news that the American food company Kraft Heinz is considering the sale of its powdered milk drink brand Complan in India for about $1 billion. With about Rs 440 crore sales in FY17, Complan is the fourth largest health drink brand in the country.

Interestingly, Kraft Heinz recognized $48 million impairment loss in the July 2017 results on account of continued decline in nutritional beverages in India.

What ails Health food drinks market?

As per Euromonitor, the market size for the Indian health food drinks (malt-based health drink and supplemental health drink) is of the order of Rs 9,600 crore wherein brands (Horlicks and Boost) dominate the category with about 49 percent share in trade volume terms.

This is a bit divergent from GSK Consumer Healthcare’s annual reports where the company claims 64.4 and 56.3 percent share in Health Food Drinks category in volume and value terms.

However, looking at market share trends from company’s annual reports, one finds that share has shrunk over the years. Weak market standing can also be implied by the GSK consumer healthcare’s revenue trajectory which has remained stagnant for last four years. Euromonitor’s findings suggest that market is getting increasingly fragmented as the competition heats up.

Table: India Health Food Drink market share

Source: Euromonitor

HFD – category expanding beyond nutrient drink

Over the period growth in health drink category has slowed down. From the double-digit growth witnessed a few years back for both malt-based drinks and supplement nutrition drinks, growth is now near high single digit. The market faces challenges in terms of growing competition, varied consumer preferences, health food drink substitutes and distribution reach. In order to cater to the latent demand, consumer, pharma, and ayurvedic companies have upped the ante by providing premium variants of health drinks addressing protein needs, specific age group requirements, heart and diabetic ailments.

In recent times, Patanjali has entered this market as a discount player with its brand, Power Vita, though pricing discount of about 10 percent doesn’t seem too disruptive in nature. Further, Nestle has re-entered the market with its brand, Milo and Danone and Sri Sri have launched new brands. Meanwhile, Abbott has worked with the medical fraternity to generate favorable opinion for its protein rich supplement Pediasure.

Table: Premiumisation at play

Source: Amazon, Bigbasket

GSK – Consumer Healthcare: What’s on stake?

GSK Consumer Healthcare’s Enterprise Value stands at about Rs 26, 783 crore (USD 4.12 billion). A 72.5 percent stake sale can fetch about ~ USD 3 billion to partially fund the buyout of Novartis’s stake in the consumer healthcare joint venture. The stock has rebounded recently and factors in a better quarterly result (+ 8 percent volume growth) and news flow on expected strategic sale. The stock is currently trading at 39x FY19e estimated earnings which is at a 15 percent discount to FMCG sector average, similar to the discount that prevailed historically.

We have excluded the business auxiliary income from our estimates, which is the commission company gets for providing marketing services for OTC Pharma brands such as Eno, Iodex, Otrivin, and Sensodyne. Post sale off, this business auxiliary income would not be available and accounts for ~4 percent of sales and estimated to be about 15 percent of earnings.

Why could Horlicks be a strategic fit for few?

News flow suggests Coca-cola could be interested in acquiring Horlicks as it moves away from carbonated drinks business and position itself with a portfolio of healthier beverages. In recent times it has introduced beverage options like the Vio dairy drink, Zico coconut water, Fuze iced tea and Minute Maid Vitingo.

Similarly, Nestle as well fits in as its portfolio shift towards healthier products. Last year, the global major had identified beverage as its core category.

In case of HUL, FMCG leader can add another strong brand to its beverage kitty and leverage from rationalization of media and distribution spend.

While some of the other FMCG majors could be interested in this, midsize companies might find it out of reach due to the size of the entity. Market cap of GSK Consumer Health is currently 60 and 40 percent that of Marico and Dabur respectively.

However, in terms of competitive landscape and synergies, a couple of things to keep in mind are Horlicks has significantly higher presence in South & East of India wherein competitive intensity from other players is lower. Secondly, there is scope for overheads optimization and margins rationalization. Company’s overhead cost as a percentage of sales is about 30 percent compared to FMCG sector average of about 20 percent. Thirdly, cost synergies in terms distribution reach are possible by reducing duplication.

Chart: Distribution reach

Source: Moneycontrol research

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