Hindustan Unilever Limited (HUL), a household name in India’s FMCG sector, has separated its ice cream business. This strategic decision is turning heads, sparking interest from both the financial markets of Dalal Street and everyday consumers on Main Street. It reflects the rising importance of the ice cream category and highlights HUL’s commitment to maximizing shareholder value.
Analysts believe the demerger presents an exciting opportunity for existing investors to gain a stake in a dedicated ice cream entity. This segment, characterized as a high-growth business, has the potential for a 15-20% compound annual growth rate (CAGR) and profit margins between 5% and 9%. Source: Mint
HUL’s Financial Performance
HUL reported a revenue of ₹59,144 crore from operations in FY23, which grew by 2% to ₹60,469 crore in FY24. Meanwhile, the company’s net profit increased by 1.5%, rising from ₹9,962 crore in FY23 to ₹10,114 crore in FY24.
Let’s explore why this decision could be a game-changer.
A Scoop of Business Potential
HUL’s ice cream segment, home to popular brands like Kwality Wall’s, Cornetto, and Magnum, may account for only 3% of the company’s total revenue, roughly ₹1,800 crore in FY24. While this might seem modest, the category has been identified as a high-growth area. However, significant investment is required to unlock its full potential.
This separation is expected to give the ice cream business the flexibility and focus needed to thrive independently. According to the company, this move will allow the new entity to have a dedicated management team and greater flexibility to adopt strategies tailored to its unique business model. Source: Economic Times
A Rare Move in the Ice Cream Industry
Globally, pure-play publicly-listed ice cream companies are a rarity. Most ice cream operations are integrated into broader FMCG businesses. Apart from Vadilal Industries, the most prominent players in India’s ice cream market, such as Amul, Arun, Havmor, Naturals, and Baskin Robbins, remain privately owned.
HUL’s decision stands out, reflecting its confidence in the segment’s growth prospects and its ability to create significant shareholder value through this focused strategy.
Comparison Between Vadilal’s and HUL’s Ice Cream Business
| Vadilal’s Ice Cream Business | HUL’s Ice Cream Business | ||
| Revenue | Operating Profit Margin | Revenue | Revenue Share |
| Rs.1,125 Crores | 20% | Rs.1,800 Crores | 3% |
What it Means for the Shareholders
For HUL shareholders, creating an independent listed entity for the ice cream business is a noteworthy value addition. It allows them to remain part of the business’s growth journey while enjoying greater transparency and a sharper operational focus.
The spin-off aims to maximize shareholder value by potentially unlocking new investment opportunities in the fast-growing ice cream market. This sector thrives thanks to rising consumer demand for indulgent and premium products.
The Growing Ice Cream Market in India
India’s ice cream industry is enjoying a rapid growth trajectory! In 2023, the market reached a noteworthy ₹228.6 billion. However, the real excitement lies in its future. Projections by IMARC Group indicate the market is set to soar to a staggering ₹956 billion by 2032, fueled by a strong compound annual growth rate (CAGR) of 17.4% from 2024 to 2032.
Who’s Leading the Pack?
The competitive landscape is buzzing with big players like GCMMF (Amul), Kwality Wall’s, Vadilal, Mother Dairy, Hatsun, and Cream Bell. Each brand is carving out its niche through premium offerings, affordability, or regional dominance.
What’s Driving This Growth?
Several factors fuel the rising popularity of ice cream in India:
- Rising Disposable Incomes: People are more willing to indulge in premium and experimental flavors as incomes grow.
- Consumer Cravings for Indulgence: Ice cream is not just a treat but an experience. Consumers are actively seeking rich, indulgent options.
- Innovative Offerings: Leading brands are captivating the market with exciting new flavors, healthier options, and creative packaging. Brands are stepping up with exciting innovations. Creambell’s Fun Spin Range and international-inspired flavors like Green Apple and Chocky Swirl bars highlight the market’s move toward diversification and novelty. These creative offerings cater to a younger, experimental audience looking for unique and fun experiences.
- Expanding Distribution Networks: Whether in bustling cities or remote villages, better distribution channels are making ice cream accessible to all.
Challenges of the Demerger
While the spin-off strategy can be a good decision, there are hurdles to overcome. Developing local capabilities and managing the transition without disrupting operations will be critical. Additionally, competition in the ice cream sector is fierce, with domestic and international players vying for market share. Ensuring robust growth while maintaining profitability will require strategic planning
Main Street’s Sweet Spot
Beyond the financial markets, this move could resonate with consumers. As the ice cream business gains independence, it might expand its product range and distribution network. This would likely lead to more innovative offerings tailored to diverse consumer needs. With brands like Kwality Wall’s already enjoying a strong presence, the spin-off could further enhance customer experiences.
What Lies Ahead?
The board has yet to finalize the separation mode, with options like demerging and listing the business or outright sale being considered. The decision is expected by year-end and will set the stage for the ice cream business’s future trajectory. This is an opportunity for HUL to streamline its focus and enhance its presence in trending demand spaces such as health and beauty.
A Win-Win Strategy?
HUL’s ice cream spin-off exemplifies strategic foresight. While Dalal Street anticipates the financial benefits of this move, Main Street can look forward to a more dynamic and consumer-centric ice cream brand. If executed well, this separation could become the sundae of choice for investors and consumers alike.
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FAQ
Why is HUL demerging its ice cream business?
HUL’s decision to demerge its ice cream business is a strategic move aimed at unlocking the full potential of its core FMCG and its ice cream business. By separating the two, HUL can focus on specific strategies, investments, and operational efficiencies for each company. This allows for greater agility, innovation, and growth opportunities.
How will this demerger impact consumers?
The demerger of HUL’s ice cream business is not expected to significantly impact consumers. Consumers can continue to enjoy their favorite ice cream brands, and the distribution and availability of these products will likely remain unchanged. The demerger may even lead to increased innovation and product launches in the ice cream category.
How will this demerger impact the Indian ice cream market?
The demerger of HUL’s ice cream business is expected to impact the Indian ice cream market positively. A standalone ice cream business can focus on innovation, product development, and marketing, which can drive growth and excitement in the category. Additionally, the demerger may lead to increased competition, which can benefit consumers through lower prices and a wider variety of products.
I’m Archana R. Chettiar, an experienced content creator with
an affinity for writing on personal finance and other financial content. I
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