Hindustan Unilever (HUL) last week set into motion a review of its `1,800-crore ice-cream business, led by brands such as Kwality Wall’s, Magnum and Cornetto, six months after parent Unilever decided to hive-off its $8.6-billion ice-cream unit globally. HUL announced that a committee of independent directors would advise the board on the way forward for the business and a decision would be taken in keeping with the interest and welfare of shareholders.
While Unilever has indicated that it will segregate and potentially list the ice-cream business globally, experts say that the company may look at all options in India including an outright sale or a demerger of the business. It may even decide against parting with the ice-cream business for now in view of the long-term potential of the market, given India’s hot climatic conditions, according to industry sources.
Organised ice-cream players from Amul to Mother Dairy and HUL registered an over 30% year-on-year growth during the crucial summer months between April and June this year, due to an extended heat wave, industry executives said. This is double the average growth rate of the `16,000-crore domestic ice-cream market, which stands at 15% per annum, they said.
Sales of Kwality Wall’s, Magnum and Cornetto, accounted for 3% of HUL’s FY24 turnover of59,575 crore. HUL trails market leader Amul, which earned over 2,500 crore from its ice-cream business in the country.
“It is not necessary that HUL has to take the same route that its parent is taking. While the ice-cream business is just 3% of HUL’s overall turnover and operates in a competitive market, it has long-term potential given India’s growing heatwaves and the emergence of quick commerce which drive impulse categories such as ice-creams,” says G Chokkalingam, founder of Mumbai-based Equinomics Research.
In an interview with FE this week, HUL CFO Ritesh Tiwari said that the board would take a call following recommendations from the sub-committee. “I cannot pre-conclude what the sub-committee will do. The entire process will be completed by the end of the current financial year (FY25),” Tiwari said.
The tea playbook
HUL was confronted with a similar dilemma in 2020 when parent Unilever initiated a global review of its tea business as part of its effort to exit commodity-led categories and focus on more value-added segments such as plant-based foods and nutrition. India stood out here because HUL is the leader in the domestic packaged tea market, both in terms of value and volume. HUL chose to retain the business, while Unilever sold the portfolio globally to CVC Capital Partners in a $5.1-billion deal in 2021. India and Indonesia were excluded from the deal.
The numbers speak for HUL’s decision to retain its tea portfolio. Of the 15,292-crore revenue or nearly 26% contributed by the food & refreshment business to HUL’s topline in FY24. Analysts estimate that the tea business alone is around 8,000 crore in size. This is led by master brand Brooke Bond, which sells in excess of `5,000 crore per annum, across sub-brands Red Label, Taaza, Taj Mahal and regional brand 3 Roses in the south. The other brand in HUL’s tea portfolio is Lipton, which is mainly into green and premium teas.
Ice-creams may not boast of the big numbers that tea does for HUL, but brands such as Kwality Wall’s have strong equity in the marketplace, say experts. Acquired in 1994 from the Lamba and Ghai families, who were restaurateurs, HUL subsequently merged the Kwality branding with Unilever’s global ice-cream label Wall’s to push a unified Kwality Wall’s in the domestic marketplace. Magnum, a global brand from Unilever, was launched in India in 2013.