HUL's Ice Cream Business To Become Independent Listed Entity, Says Board

Hindustan Unilever Ltd. announced on Monday that its Board has granted in-principle approval to demerge the company’s ice cream business into an independent, publicly listed entity — a move that is aimed at maximising value for shareholders and enhancing operational focus.

In a statement filed with the stock exchange, the consumer goods giant detailed that the proposed demerger will allow existing shareholders to receive shares in the newly formed entity in proportion to their current holdings in HUL. The demerger is contingent upon obtaining necessary regulatory approvals and shareholder consent, with the scheme of demerger expected to be placed before the Board early next year.

For the purpose of the proposed demerger, the Board has also approved the incorporation of a wholly owned subsidiary.

In September, the Board constituted a committee of independent directors of the company to evaluate the prospects and way forward for the ice cream business following parent Unilever's decision to demerge the unit. Based on the recommendation of the independent committee, the Board had announced the separation of the business in October.

"The demerger of the ice cream business will create a leading listed ice cream company in India, which will have a focused management with greater flexibility to deploy strategies suited to its distinctive business model and market dynamics, thus realising its full potential," HUL said in a statement. "Further, the business will continue to be equipped with the portfolio, brand, and innovation expertise from the largest global ice cream business, enabling it to keep winning in the marketplace."

A separate listed entity will unlock fair value for HUL shareholders and provide them with the flexibility to maintain their investment in the growth of the ice cream segment, HUL said, adding that this strategic demerger will also enable a smoother transition for the business and its employees.

Analysts have given a thumbs up to the plan.

"Value unlock by demerger is a good option," said Abneesh Roy, executive director, Nuvama Institutional Equities. "The demerger allows existing investors to have a pure-play ice cream entity, which is a high-growth business (15-20% CAGR potential) and has iconic brands like Magnum, Cornetto, and Kwality Wall's with 5-9% profit margins. Shareholders of HUL (the leftover entity) can eventually look at a special dividend when and if HUL exits the ice cream listed entity. This will allow a smoother transition."

In the financial year 2023, ice creams contributed to just 3% of HUL's revenue of Rs 58,154 crore. It is not a significant contributor to profitability either, making a case for the company to sell off the business in the future.