Oziva buyout to improve HUL’S health in long run

The FMCG giant’s stock hit a fresh 52-week high on Friday

Hindustan Unilever (HUL) has announced foray into the health and well being (H&W) segment with the acquisition of ‘Oziva’ and ‘Wellbeing Nutrition’.

This, however, may not move the needle much on the company's profitability front. But the additions signify HUL’S clear intent to be an early entrant and build its H&W franchise in India, analysts said on Friday.

“While targets are insignificant in the context of HUL’S current revenue and profit base, we like the management’s growth mindset and focus on identifying future consumer needs and trends,” said Vivek Maheshwari of Jefferies India, in a coauthored report with Kunal Shah and Jithin John.

The foray is in line with the global phenomenon where parent firm Unilever has itself acquired seven such brands over the last four years and built a euro onebillion business.

Following the development, shares of Hindustan Unilever gained for the fifth straight session on Friday.

The stock gained 1.4 per cent and hit a fresh 52week high at ~2,741 during intraday. It ended at ~2,721, up 0.74 per cent on the BSE.

Meanwhile, the BSE Sensex settled 0.62 per cent lower, while the BSE FMCG index gained 0.7 per cent.

The deal

On December 8, HUL announced buying a 51 per cent stake in Zywie Ventures, which sells plant-based and clean-label consumer wellness brands under the name Oziva, for ~264.28 crore.

Oziva clocked revenues of ~120 crore during the financial year 2021-22 (FY22; 6-times over FY20-22).

Besides, HUL will also pick up a 19.8 per cent stake in Nutritionalab, which houses its products under the brand name Wellbeing Nutrition. The deal is for ~70 crore. The company clocked revenues of ~19.4 crore in FY22, 9-times over FY19-22.

The deals are expected to be completed in one-three months, according to the management. The H&W category will be a part of HUL’S beauty and personal care (BPC) segment. The management further said that H&W has a potential market size of ~30,000 crore over 4-5 years.

With these acquisitions, the company will focus on high-growth areas such as sleep and stress, women’s health, gut health, beautyfrom-within and plant-based products.

What's in it for HUL?

HUL is currently present in the mass end in supplement and wellness space through Horlicks.

These acquisitions will help grow presence in the premium segment. It would have 8x realisation in Oziva vs base variant of Horlicks, said Amnish Aggarwal of Prabhudas Lilladher.

Further, the businesses are gross profit margin-accretive to HUL with gross margin of 55 per cent.

Analysts believe HUL is well-placed to grow its H&W franchise, both through organic and inorganic means. They support scaleup/value unlocking of these acquisitions.

“In the past, HUL ramped up Indulekha and Vwash sharply, post-acquisition.

With start-up capital drying up for small D2C players, we expect further consolidation in this space. This will favour large FMCG (fast-moving consumer goods) players such as HUL,” said Abneesh Roy of Nuvama Institutional Equities.

Analysts at Jefferies said that over time, HUL will create a separate Health & Wellbeing team, housed under the BPC vertical for this foray. It targets to further expand the portfolio, both through inorganic and organic routes.

HUL will also look to bring some of Unilever’s global brands in H&W to India.

Analysts’ one-year target prices range from ~2,230 to ~3,175, indicating an upside of up to 16.7 per cent from current levels.