HUL Ice Cream: HUL ice-cream can be D-St’s sundae of choice; Main Street must love it, too

ET Intelligence Group: With Hindustan Unilever’s (HUL) board approving the demerger of its ice-cream business into an independent listed entity, investors in India will get a pure-play MNC ice cream company to invest in.

For HUL, its ice cream segment with brands such as Kwality Walls, Cornetto and Magnum contributes around 3% to its total revenues – translating to nearly ₹1,800 crore in FY24. It is a high-growth business earning mid to high single-digit profitability.

According to the company, the demerger will create a leading listed ice-cream company in India having a focused management and greater flexibility to deploy strategies suited to its distinctive business model thereby realising its full potential. A separate listed entity will unlock fair value for HUL shareholders, giving them the flexibility to stay invested in the ice-cream growth story.

However, pure-play publicly-listed ice-cream companies are extremely rare globally, as most ice-cream businesses are either part of larger conglomerates or privately held. In India too, except for Vadilal Industries, most of the players in the ice-cream market such as Amul, Arun, Havmor, Naturals and Baskin Robbins are privately held.

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Once listed, the new ice-cream entity will be in direct competition with Vadilal Industries, which has had its stock appreciate over 51% in the past one year. Vadilal claims to be the second largest ice-cream brand in the country, commanding a 16% share of the ₹20,000 crore organised Indian ice-cream market. Besides ice-creams, the company has a small presence in the frozen foods market. For FY24, it earned revenues of ₹1,125 crore with an operating profit margin of nearly 20%.

As a pure-play ice-cream company, HUL’s spun-off entity will have several challenges to contend with – seasonality in sales, forging growth in a competitive landscape that has several regional players with their retail chains and the need to roll out healthier dairy-based products. Besides, having an ice-cream is a form of impulse consumption that can get adversely impacted due to lower disposable income as well as weather disruptions.Earlier this year, HUL’s parent Unilever announced its strategic intent to separate its ice-cream business, which houses brands like Ben & Jerry’s and Magnum, into a standalone business. HUL too has followed the parent’s actions. However, it remains to be seen how long the global FMCG company will remain interested in holding a stake in a listed ice-cream business. For now, HUL’s shareholders can look forward to being part of the value unlocking happening due to the listing of an MNC-owned ice-cream business.



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