HUL’s sweet move: Key highlights of ice-cream business demerger

HUL’s ice cream segment accounts for 3% of HUL's total revenue from operations for FY23. The segment is a high growth, considering domestic factors such as rising disposable income and changing consumer preference, but equally requires high investment while generating low margin business for HUL. Globally, Unilever PLC (Parent of HUL) had announced the separation of the ice cream business, therefore, HUL now will have to build capabilities locally to continue running the ice cream business.

HUL’s parent Unilever PLC’s global ice cream business operates five of the top ice cream brands, including Wall’s, Ben & Jerry’s, and Magnum. In 2023, the ice cream business saw a turnover of €7.9 billion for the company. However in March 2024, Unilever had decided to separate its ice cream business.

Why HUL plans for demerger?

• Ice Cream business is a high-growth segment that needs significant investments to realise its complete potential.
• Ice Cream has a different operating model, including cold chain infrastructure and a distinct channel landscape, which limits synergies with the rest of HUL.
• Given that Unilever PLC (Parent of HUL) owns the trademarks and know-how and has announced the separation of its Ice Cream business, HUL's ice cream business needs local capabilities to continue operating.
• The portfolio restructuring is expected to enable HUL to sharpen its focus on the core business and strengthen its base in trending segments such as beauty, food, health, and well-being.

Additionally, the demerger of the ice cream business will allow more flexibility and focus in operations. Overall, management anticipates demerger to maximise value for all shareholders.

Popular ice cream brands owned by HUL

The HUL’s high-growth ice cream business has the following iconic brands:

• Kwality Wall’s
• Cornetto
• Magnum

What will the existing shareholders get?

The share exchange ratio (number of shares the existing shareholders will receive from the new/ demerged entity) has not been announced.

According to the exchange filing, management said, “The demerger would aim to maximise shareholders' value.”

Key competitors and listed peers

Unlike the home and personal care categories, where HUL is a dominant leader, HUL faces heavy competition from local and global brands:

• Gujarat Co-operative Milk Marketing Federation Ltd (AMUL)
• Kamaths Ourtimes Ice Creams Pvt. Ltd (Naturals Ice Cream)
• LOTTE Wellfood Co. Ltd (Havmor)
• Mother Dairy Fruit & Vegetable Pvt Ltd
• Baskin Robbins India

Among Listed Peers -

• Vadilal Industries (Vadilal Ice Cream)
• Hatsun Agro Product (Arun Ice Cream)

Indian ice-cream sector

According to a 2023 report by Wazir Advisor, India's ice cream sector is projected to surpass $5 billion by FY25. Currently valued at $3.4 billion, the market is driven by factors such as above-normal temperatures, rising disposable incomes, innovative new-age brands, premiumisation, increasing penetration in Tier II and Tier III cities, and the rapid expansion of quick commerce (Q-commerce).

Traditional brands like Vadilal, Amul, HUL, and Cream Bell are strengthening their presence in the Q-commerce space, focusing on hyperlocal business models to meet consumer demands. Q-commerce plays a crucial role in satisfying instant cravings, with nearly 10% of its users ordering ice cream and chocolates through these platforms.

Meanwhile, several emerging brands like Go Zero, Noto, Get-A-Way, Frubon, and Minus 30 are making waves in the sector. Notably, Go Zero recently raised $1.5 million from investors, including DSG Consumer Partners, Saama Capital, and V3 Investors, to fuel its expansion plans. This underscores the growing interest of investors in India’s thriving ice cream industry.

Ice cream segment revenue contribution to HUL

Ice Cream, a high-growth business with iconic brands, delivered double-digit volume growth in Q1FY25. Summer launches supported this, but volumes remained flat in Q2FY25 due to prolonged rainfall in certain regions.

During FY23, the ice cream business contributed approximately 3% of HUL’s total revenue of ₹59,144 crore. This ice cream segment falls under HUL’s Food & Refreshment category, representing 25% of its overall revenue.

Globally, HUL’s parent company, Unilever, is the world's biggest ice cream maker, with brands such as Ben & Jerry and Magnum, generating ₹ 7.9 billion in revenue and contributing 16% of its total revenue.

HUL looks to leverage its popular brands like Kwality Wall’s, Cornetto, and Magnum to capitalise on growth opportunities in the attractive sector. The company’s shareholders are likely to benefit from the fair share exchange ratio from the demerger.