Hindustan Unilever Ltd. on Monday announced that it has entered into a deal with the Indian division of A.O. Smith to sell its water purification business for an enterprise value of Rs 601 crore, equivalent to $72 million.
The proposed transaction will be undertaken via a slump sale through a business transfer agreement between HUL and A.O. Smith India Water Products Pvt., according to an exchange filing. The sale is expected to be completed within three months.
"This move is in line with our strategic intent to focus sharply on our core categories," said HUL Chief Executive Officer and Managing Director Rohit Jawa.
In 2004, HUL introduced Pureit in Chennai before expanding its availability nationwide in 2008. The company then ventured into the electric water purification market in 2011. In FY24, the water purification business had a turnover of Rs 293 crore, representing less than 1% of HUL's sales.
This division, however, is part of HUL's home care business and hence, its net worth is not separately tracked, the company said in a statement.
"The Pureit brand, known for innovative water purification products, strong brand recognition and dedication to customer service, complements A.O. Smith's geographic and channel presence," said Parag Kulkarni, president of A.O. Smith India Water Products. "The Pureit team's deep understanding of consumer needs and water treatment expertise adds tremendous strength to A.O. Smith in India."
Analysts have given a thumbs up to the Surf Excel-maker's decision to divest the business. "In our view, water purification business is hyper-competitive and very different from a typical FMCG business. Product differentiation is not easy, and pricing is a key disruptor here," according to Abneesh Roy, executive director, Nuvama Institutional Equities. "Having sold Pureit at 2 times EV/Sales FY24, the deal is marginally positive for HUL."
Other than India, Pureit offers a range of water purification solutions across Bangladesh, Sri Lanka, Vietnam and Mexico, among other countries.
"We believe the addition of Pureit will strengthen our leadership position as a global supplier of premium water treatment products and will double our market penetration in South Asia," said Kevin J Wheeler, chairman and chief executive officer, A.O. Smith Corporation. "The acquisition will also support our corporate strategy by enhancing our premium product portfolio and distribution capabilities."
The US-based water technology company, which is listed on the New York Stock Exchange, doesn't expect the proposed deal to have a material impact to earnings in the first year.
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