The $452 million Unilever-GSK deal had to be changed because India’s love for Horlicks is worth billions

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The $452 million Unilever-GSK deal had to be changed because India’s love for Horlicks is worth billions
  • HUL acquired brand Horlicks from GSK for about $398 million (₹ 3,041 crore) for the Indian market.
  • HUL’s parent company Unilever paid around $54 million (₹415 crore) for Horlicks brand for other geographies.
  • Edelweiss research predicts that by the end of the financial year 2020, HUL will be leading the food company business in India after buying out the Horlicks brand.
Even in a volatile market, Hindustan Unilever’s (HUL) share price saw a 19% surge in the last one month. All thanks to the HUL and GlaxoSmithKline Consumer Healthcare (GSK) merger, which will make it India's biggest food company.

The $452 million Unilever-GSK deal had to be changed because India’s love for Horlicks is worth billions
Source:BSE

The secret of the strength in the HUL-GSK deal is Horlicks, a health drink — which is made of wheat flour and malted wheat. However, Horlicks was earlier owned by one of GSK Plc’s group entities and hence did not automatically come into HUL’s fold pursuant to the merger.

HUL paid GSK $398 million (₹30.5bn) more to buy Horlicks for the Indian market. And Unilever, HUL’s British-Dutch parent company, too paid around $54 million (₹4.15bn) to sell Horlicks in other countries.
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Horlicks accounts for 43% share in HFD category

Almost 90 years after its India debut, Horlicks commands a premium and has managed to maintain its strong 43% volume share in India’s ₹6,500 crore health food drinks (HFD) category, according to ET.

And it could become much bigger under HUL whose distribution network is thrice as vast as compared to GSK in India.
The $452 million Unilever-GSK deal had to be changed because India’s love for Horlicks is worth billions

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Hence, just like its earlier acquisition of Indulekha, an ayurvedic oil for hair fall control, which saw a four-fold revenue jump in the last four years, HUL can propel Horlicks to new heights too.

According to Edelweiss, the HFD category continues to provide immense growth opportunities. It grew by as much as 14-15% for a decade before the current economic slowdown amid coronavirus.

Edelweiss research predicts that by the end of the financial year 2020 HUL will lead the food business in India much ahead of its competitors Nestle India, Britannia and ITC.

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HUL to become the biggest food company in India
Food companies Turnover (₹ crore) FY20E
Hindustan Unilever (F&R) and GSK consumer ₹12763
Nestle India ₹12295
Britannia ₹11532
ITC ₹10935
Source: Company, Edelweiss research

The merger of HUL-GSK also involves HUL distributing GSK’s over-the-counter (OTC) brands like ENO, Crocin and Sensodyne for five years, which will further strengthen HUL’s position in the chemist channel.

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