Bureau Veritas
Carst And Walker

Unilever swallows GSK’s Indian Horlicks business for $3.8 billion

Unilever is to buy GlaxoSmithKline’s Horlicks nutrition business for $3.8-billion, boosting the Anglo-Dutch group’s position in India by adding the popular malted drink to its portfolio.

The deal, announced on December 3, increases the consumer goods giant’s reach in one of the world’s fastest-growing economies and marks a notable addition to the portfolio by outgoing CE Paul Polman, who steps down in January.

Even though many of Unilever’s recent acquisitions have focused on beauty and personal care products, buying Horlicks is a rare opportunity for Unilever to increase its scale in India, particularly in food and drinks.

For GSK boss Emma Walmsley, it is a chance to further streamline operations and generate cash for increased investment in pharmaceuticals. A few hours later, GSK announced it had agreed to buy US cancer drug specialist Tesaro for $5.1-billion, marking a major biotech investment by the drugmaker.

The Horlicks deal follows a competitive auction in which Unilever saw off rival Nestle, as well as earlier interest from Coca-Cola.

The transaction covers GSK’s health food and drinks portfolio in India, Bangladesh and 20 other predominantly Asian markets. The business has annual sales of around 550-million euros, primarily through the malt-based Horlicks and Boost brands.

Brought to India by returning World War I soldiers, Horlicks has since been a fixture at Indian breakfast tables of many middle-class, urban Indians who caught on to the brand’s promise to make kids “taller, stronger, sharper”.

The early-mover advantage made Horlicks the leader of India’s health food category, with an over 50% market share.

While Horlicks comfortably dominates the health-drinks market in India, Unilever is expected to try to give it a fresh lease of life, following a slowdown in recent years as urban Indian consumers turn to healthier, less-sugary alternatives.

Bernstein analysts have said the business’s growth slowed from 15 percent to 4 percent between 2013 and 2017, leading to lost market share, though management has indicated that performance has started to pick up in recent quarters.

Srinivas Phatak, finance head of Unilever’s Indian unit, said he expected the business to grow at a double-digit percentage rate in the medium term, boosting both earnings and profit margins.

That would be well beyond Unilever’s overall sales growth, this year forecast at the bottom end of a 3-5 percent range.

“Growth has been a challenge in the recent periods,” Liberum analyst Robert Waldschmidt said. “They’re clearly expanding their emerging market footprint further and buying growth.”

Unilever will seek to leverage its formidable distribution network to boost sales of Horlicks in smaller cities and rural areas.

Source: Reuters

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