By Nuvama research

FMCG Major Hindustan unilever (HUL) has forayed into health and wellbeing category through strategic investments in Zywie Ventures’ OZiva and Nutritionalab’s Wellbeing Nutrition. HUL will acquire 51% stake in OZiva through a combination of primary infusion and secondary buy-outs for a cash consideration of Rs 264 crore. In Wellbeing Nutrition, HUL will acquire 19.8% stake through a combination of primary infusion and secondary buyouts for a cash consideration of Rs 70 crore.

HUL is confident of ramping them up—leveraging its unparalleled distribution reach and marketing capabilities. Both these investments are gross margin-accretive. Unilever’s global H&W expertise shall help add value and scale up the segment for HUL.

In the past too, HUL’s smaller acquisitions have ramped up well and filled out its white spaces (Indulekha, VWash). We expect these two acquisitions – OZiva and Wellbeing Nutrition – to chart a similar growth path; retain ‘BUY’ with an unchanged TP of Rs 3,140.

What’s the payoff? Benefits that make the acquisitions worthwhile
HUL has made a total investment of Rs 334 crore in Oziva (Rs 264 crore) and Wellbeing (Rs 70 crore). Both of these D2C premium brands cater to millennials, particularly Gen-Z with the right consumer cohort, and complement changing consumer preferences. The acquisition, though small, enables HUL to enter the H&W category. HUL expects, the overall H&W industry in India be Rs 30,000 crore over the next four–five years.

Unilever globally has grown this category inorganically to euro 1 bn since 2013. These businesses will sit under HUL’s BPC portfolio; management plans to build a separate category within BPC and set up a team that would drive its growth. This could be a fast-growing business as consumers are adopting healthier lifestyles with increasing awareness on health.

Proven track record to ramp up small acquisitions
We like HUL’s strategy of acquiring and ramping up small companies to fill white spaces, thereby strengthening its portfolio. In the past, HUL ramped up Indulekha and VWash sharply post-acquisition. Indulekha, a specialist natural hair care brand with strong Ayurvedic credentials, was acquired in 2016 and has grown 6x. VWash, a female intimate hygiene brand acquired in 2020, is also gaining traction among consumers.

Outlook and valuation: Inorganic an active strategy; retain ‘BUY’
In addition to exploring organic and inorganic growth opportunities in the H&W portfolio, HUL would consider bringing in its global H&W portfolio to India. Unilever’s global H&W expertise shall add value and help scale up the segment in India. In case of both investments, promoters would run the respective businesses and HUL would help them with distribution, marketing capabilities and other support as required. With start-up capital drying up for small D2C players, we expect further consolidation to happen in this space. This would favour large FMCG players. HUL remains among our top picks with a ‘BUY/SO’ and TP of Rs 3,140.

HUL believes that H&W is a fast-evolving growth segment considering keen consumer awareness towards holistic health and nutrition, wherein they understand the benefits of preventive care and well-being. All these factors and India’s micronutrient deficiency challenge implies a potential vitamins, minerals and supplements market of almost Rs 30,000 crore.

The H&W market is broadly categorised by sports nutrition, vitamins and diet & weight management. This market consists of high-growth benefit spaces such as sleep and stress, women’s health, plant-based nutrition, gut health, beauty from within, etc. OZiva is a leading plant-based and clean-label consumer wellness brand focused on the need spaces such as lifestyle protein, air & beauty supplements, and women’s health.