Hindustan Unilever (HUL), which has acquired Horlicks and Boost, is likely to cross ₹50,000 crore-mark revenues by 2021, largely driven by the growth coming from its foods and refreshment category, according to global brokerage firms.
HUL’s actual sales for the fiscal year 2018 was ₹33,926 crore and is estimated at ₹38,000 crore for FY 2019.
Maintaining a bullish view on the acquisition of Horlicks-maker GlaxoSmithKline Consumer Healthcare (GSK CH), leading investment firms including Credit Suisse, CLSA, Morgan Stanley, Goldman Sachs, have stated that the deal is likely to position HUL as the largest foods and refreshment company in India, surpassing ITC, Nestle, Mondeleez and Britannia.
“With the acquisition of GSK, HUL will emerge as the largest food and refreshment company India. The share of food and refreshment of overall revenues will increase by 8- 9ppts,” mentions a CLSA report.
At present, HUL’s food and refreshment (F&R) segment has sales of ₹6,500 crore and with the acquisition, the total sales of the merged business will be ₹10,700 crore.
ITC’s food division did sales worth ₹8,600-odd crore in FY 18. Maggi-maker Nestle was at 10, 000 crore for 12-months ending December 17, and Britannia is at 9,464 for FY 18, according to data sourced from BSE.
HUL, known across Indian households for making products like Ponds, Lux, Surf, Fair and Lovely and Lakme, has so far seen a very little success in its F&R business that has ice-creams, tea, coffee and soupy noodles.
With the acquisition of GSK CH’s brands like Horlicks, Boost, Viva and Maltova, the FMCG major looks to expand its foods division through improved sales and margin.
Sanjiv Mehta, HUL’s Chairman and MD, in a post-deal press conference said that the company expects a double digit growth in this category, which is ahead of the market. Brokerage firms peg the F&R market to grow at 8 per cent.
The report also said that the deal is in-line with HUL’s strategy to build white space through strategic acquisitions, which has been HUL’s forte in the Indian market.
With the deal, the company enters a new category called Health Food Drinks (HFD), which is estimated to be a ₹7,000 crore market in India. Horlicks and Boost have a 60 per cent market share in this segment.
It is also important to mention here that the company entered this segment briefly through ‘Kissan Amaze’ but had to discontinue .
Most of the brokerage firms have raised their recommendations from hold to buy and believe that the deal will add value to HUL, as the company would be able to establish its dominance in the fast growing HFD segment.
According to Deutsche Bank, the acquisition would lead to a cumulative gain of around 700 basis points to 800 basis points in the earnings per share in the coming years.
However, despite all the optimism and positive sentiments, HUL shares lost nearly 1 per cent and was at ₹1,808.25 on Tuesday.