5 Things HUL Shareholders Should Know as HUL Demerges Ice Cream Business

Demergers have become a buzzword in India Inc., with leading conglomerates turning to this strategic tool to unlock hidden value and sharpen their focus.

As conglomerates realign their structures to capitalise on niche opportunities, 2025 seems to be the year of strategic separations, setting the stage for a new era of growth and innovation.

This restructuring wave, exemplified by ITC's separation of its hotels business and Tata Motors' strategic split between its passenger and commercial vehicle segments, has been fuelled by a growing focus on unlocking value, improving operational efficiency, and enabling growth.

Now, Hindustan Unilever (HUL) has entered the spotlight. It's gearing up to explore a similar path.

About HUL

HUL one of India's top FMCG companies, has been a driving force in shaping consumer lifestyles since its founding in 1933. Based in Mumbai, HUL operates as a subsidiary of Unilever PLC, which holds a 52.5% stake in the company.

With a presence in over 190 countries, HUL offers a wide range of trusted products under iconic brands such as Lux, Lifebuoy, and Dove. Known for its continuous focus on innovation, HUL has cemented its position as a household name in India and beyond.

The company operates across four key segments: Home Care, Personal Care, Foods and Refreshments, and Frozen Desserts.

HUL Demerger

#1 Demerger Approval

Hindustan Unilever Limited (HUL) has officially approved the demerger of its ice cream business into a separate listed entity, Kwality Wall's (India) Limited (KWIL).

This decision announced on 22 January 2025, marks a significant milestone in HUL's journey to streamline operations and unlock shareholder value.

The demerger had been under evaluation since September 2024, when HUL formed an Independent Committee to assess its feasibility. Based on the committee's recommendations, HUL's board gave its in-principle approval on 25 November 2024, setting the stage for this strategic move.

On 10 January 2025, HUL incorporated Kwality Wall's (India) Limited as a wholly owned subsidiary to facilitate the transition.

The announcement of the demerger coincided with HUL's Q3 FY25 results, signalling its commitment to delivering focused growth in its high-potential ice cream business.

#2 Demerger Ratio

The company has proposed a 1:1 share allocation ratio, meaning that for every share held in HUL, shareholders will receive an equivalent share in Kwality Wall's (India) Limited.

This structure ensures proportional representation in the new entity and allows investors to participate in its growth journey as a standalone listed company.

#3 Demerger Rationale

The rationale behind this strategic demerger lies in the distinct operational requirements of HUL's ice cream business. Unlike its core FMCG operations, the ice cream segment relies heavily on cold chain infrastructure and a unique distribution network.

These factors, combined with the global separation of Unilever's ice cream division, made the case for creating an independent entity.

HUL's ice cream business, featuring renowned brands like Kwality Wall's, Cornetto, and Magnum, recorded a turnover of Rs 15.95 billion (bn) in FY24, contributing 2.7% to the company's total standalone revenue.

By demerging, HUL aims to unlock the full potential of this high-growth segment, enabling KWIL to focus on tailored strategies and capitalise on opportunities in the frozen desserts market.

HUL CEO and MD Rohit Jawa emphasised that the move would unlock fair value for shareholders and ensure flexibility to stay invested in the ice cream business's growth journey.

#4 Listing Plan

HUL has confirmed that Kwality Wall's (India) Limited will be listed on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). The listing is subject to requisite approvals from statutory and regulatory authorities.

KWIL's primary focus will include the manufacture, marketing, distribution, and sale of ice creams, frozen desserts, and other frozen products, setting the stage for an independent operational and strategic roadmap.

#5 What Does This Demerger Mean for Shareholders?

Hindustan Unilever's (HUL) decision to demerge its ice cream business into a standalone listed entity, Kwality Wall's (India) Limited (KWIL), is poised to unlock significant value for shareholders.

Through the demerger, the shareholders will receive a 1:1 share allocation in the new entity, ensuring proportional participation in the growth of Kwality Wall's (India) Limited.

The ice cream business, operating in a high-growth category with iconic brands, holds significant potential to generate value independently.

A Close Look at the Financials

For December 2024 quarter, HUL reported a consolidated total income of Rs 160.5 billion (bn), 1.7% YoY high, compared to Rs 157.8 bn a year back.

Meanwhile the net profit rose 19% YoY to Rs 29.8 bn, up from Rs 25.1 bn a year back.

HUL's home care business grew by 5.3% during the quarter, while its food business posted a marginal growth of 0.5% YoY.

However, the beauty segment recorded a 1.5% growth, while the personal care segment saw a 3% decline compared to the year-ago period.

The company, which derives approximately 60% of its overall sales from urban markets, noted a subdued urban demand despite some revival in rural demand.

For the FY24 the company reported revenue at Rs 4618,960 million (m), up 2.2% YoY. Meanwhile it reported marginal growth in net profit to Rs 102,820 m.

HUL's Financial Snapshot (FY22-24)

(Rs m, Consolidated)	FY20	FY21	FY22	FY23	FY24
Revenue	397,830	470,280	524,460	605,800	618,960
Revenue Growth (%)	1.2	18.2	11.5	15.5	2.2
Net Profit	67,640	80,000	88,870	101,430	102,820
Net Profit Margin (%)	17	17	16.9	16.7	16.6
Return on Equity (%)	82.3	16.8	18.11	20.2	20.1
Return on Capital Employed (%)	113.1	22.5	24.4	26.8	27.8

Source: Equitymaster

Between 2020 to 2024, HUL's net sales have grown 9.5%, while the net profit has grown tremendously at a CAGR of 11.2%.

The average RoE and RoCE for the past five-year period have stood at 31.5% and 42.9%, respectively.

Recent Development

# Minimalist Acquisition

Alongside the demerger, HUL has expanded its portfolio with the acquisition of a 90% stake in Minimalist, a beauty brand founded in 2020, for an enterprise value of Rs 29.6 bn.

HUL plans to acquire the remaining stake within two years. Minimalist's annual revenue run rate exceeds Rs 5 bn. It has been consistent profitability since inception, The acquisition will strengthen HUL's Beauty & Wellness.

The company described the acquisition as a significant step toward tapping high-growth premium demand spaces in the beauty segment.

In FY24, Minimalist generated a revenue of Rs 3.5 bn, an increase of 89% from Rs 1.8 bn clocked in FY23. During the same period, it also saw its profit more than double from Rs 50 m to Rs 110 m. Minimalist has been profitable for at least four years, data showed.

Based on its FY24 numbers, Minimalist has commanded a revenue multiple of about 10x, significantly higher than 4-6x that similar direct-to-consumer (D2C) startups get during similar deals, thanks to its financial discipline.

What Next?

Going forward, Hindustan Unilever plans to address the underrepresentation of premium offerings in its beauty and wellbeing category.

While certain areas of the business are already well-positioned with premium products, the company aims to improve its overall portfolio by 900 basis points towards premiumisation in the coming years, as outlined by CEO Rohit Jawa during the post-earnings call.

The company has already observed a faster growth rate in premium shampoo sachets compared to mass sachets, reflecting the ongoing market trend toward premiumisation.

To further capitalise on this shift, HUL is focusing on expanding its presence in emerging product formats, such as serums, masks, and conditioners, which have consistently shown positive results.

This targeted approach aims to strengthen HUL's positioning in the premium segment, driving long-term growth and profitability.

Conclusion

The Indian food processing industry is poised for significant growth, with the market size expected to exceed US$ 540 bn by 2028.

This strong growth is complemented by the rise of digital advertising in the FMCG sector, which is projected to reach US$ 9.92 bn by 2023, with FMCG companies being key contributors.

India's dairy industry is set for healthy revenue growth, driven by increased consumer demand and a rise in raw milk supply, supported by government policy and greater investments in the sector.

As one of India's leading FMCG companies, Hindustan Unilever is well-positioned to capitalise on these positive industry trends.

The company stands to benefit from the expanding food processing and dairy sectors, leveraging its strong brand portfolio and market presence to further solidify its leadership in the FMCG space.

Investors should evaluate the company's fundamentals, corporate governance, and valuations of the stock as key factors when conducting due diligence before making investment decisions.

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