HUL approves demerger of ice-cream business into separate, listed entity

Hindustan Unilever Ltd (HUL) said on Monday its board of directors has given in-principle approval to demerge the company’s ice-cream business into a separate, listed entity.

The board has authorized HUL’s management to undertake preparatory steps required for the potential demerger of the ice-cream business, including the drawing up of the scheme of arrangement.

“Subject to the necessary approvals and procedures to be followed in accordance with the applicable laws, it is proposed that the shareholders of HUL will receive shares in the new entity in proportion to their shareholding in HUL. The decision to demerge is subject to approval of the board and the shareholders to the scheme of demerger to be placed before the board early next year,” the company said in an exchange filing.

The board considered different modes of separation of the ice-cream business and after due consideration, with a view to maximize value for all the shareholders, the board has accorded in-principle approval to demerge the business, India’s largest fast-moving consumer goods (FMCG) company said.

The HUL stock closed 1.2% higher at ₹2,474.95 on the National Stock Exchange on Monday.

Globally, Unilever’s ice-cream business operates five of the top 10 selling brands in the category, including Wall’s, Magnum, and Ben & Jerry’s. The brands together delivered a turnover of €7.9 billion in 2023 for Unilever.

HUL’s move follows its London-based parent Unilever’s decision in March this year to separate its own ice-cream business in a bid to become a more “focused” company, operating four business groups across beauty and well-being, personal care, home care and nutrition. Meanwhile, in India, HUL’s ice-cream brands, which include Kwality Wall’s, Cornetto, and Magnum, accounted for less than 3% of its total revenue in FY23. HUL’s total revenue from operations in FY23 stood at ₹59,144 crore.

Earlier in September, the HUL board constituted a committee of independent directors to evaluate the prospects and way forward for the ice-cream business, pursuant to Unilever’s decision to separate their ice-cream business.

Based on the recommendation of the independent committee, the board then announced the separation of the business in October 2024.

“Ice-cream is a high-growth business with iconic brands such as Kwality Wall’s, Cornetto and Magnum, operating in an attractive category, and has mid to high single-digit profitability. 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. 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,” HUL said.

Analysts said the demerger will allow existing investors to have a stake in a pure-play ice-cream entity also which is a high-growth business—15-20% CAGR potential, with 5-9% profit margins.

“This will allow more flexibility and focussed management for the ice-creams business. Shareholders of HUL (leftover entity) can eventually look at a special dividend when and if HUL exits as an ice-cream listed entity. This will allow a smoother transition,” said Abneesh Roy, executive director, Nuvama Institutional Equities.

India’s ice-cream market is set to cross $5 billion by FY25, according to a 2023 report by Wazir Advisors. The country’s predominantly hot and humid climate contributes to demand for both ice-creams and cold beverages. Brands such as Amul, Natural’s, Havmor, Mother Dairy, Vadilal, Nic, among others sell ice-creams in the market.

The move comes as the company is making structural changes to tap growing markets. Last December, HUL announced the splitting up of its beauty and personal care business into two separate business units—one dedicated to beauty and well-being and the other to personal care. Other divisions at HUL include food and refreshments, and home care. In FY24, HUL’s revenue from operations stood at ₹60,469 crore, with a profit of ₹10,114 crore.