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Start of the ‘Health & Wellbeing’ journey

HUL has signalled its serious intent to build a ‘Health & Wellbeing’ portfolio. While this may appear to be an ‘extension’ of the earlier Horlicks malted food drinks acquisition, the foray is also a global phenomenon (Unilever has itself acquired 7 such brands over the last 4 years and built a €1bn business therefrom - Equilibra, Smartypants, Liquid IV etc - inline with its strategic priority of focusing on high-growth spaces) and Health & Wellbeing is also far more premium in terms of price-point (8x ASP vs base Horlicks). The job at hand is to leverage its market development and R&D expertise, distribution might, and at an appropriate time, the global Unilever portfolio to scale and unlock value in what is estimated to be a potential INR300bn-segment (4-5 years out). As a start, HUL has acquired two brands (details below) and more M&As could follow, in our view.

* Contours of the deal: HUL has made strategic investments in Zywie Ventures (OZiva brand) and Nutritionalab (Wellbeing Nutrition brand) and will acquire 1) 51% of OZiva upfront (mix of primary infusion and secondary buyouts) for a sum of INR 2.64bn (4.2x FY22 sales) and balance 49% to be acquired after 3 years on pre-agreed valuation criteria; 2) Minority stake of 19.8% in Wellbeing Nutrition for INR700mn (18x FY22 sales; sub-7x based on current run-rate). The respective founders will continue to drive the businesses and HUL will have board representation in the entities.

* Health & Wellbeing looks to be the next big thrust-area for HUL: The immediate opportunity, we believe, would be to leverage its deep consumer insights to drive market development & expand penetration and reach from D2C to marketplaces and onwards to modern-trade, chemist outlets and then to broader general grocery stores once the category has broader acceptance and usage. HUL estimates total VMS market potential (Vitamins, Minerals, Supplements) to be INR300bn and looks to build a play in high growth benefit spaces like sleep and stress, women’s health, gut health, beauty from within, plant-based, etc. Over the medium term, there is also an opportunity to tap into Unilever’s global Health & Wellbeing portfolio (7 brands with combined sales of €1bn).

* These are significantly more premium plays compared to Malted Food Drinks: OZiva is a plant-based clean-label consumer wellness brand focused on Lifestyle Protein, Hair & Beauty Supplements, Women’s health. Wellbeing Nutrition pioneered disruptive formats in science-backed, benefit-led clean products in the space; its range includes Melts (Oral Thin Strips), slow-release capsules, etc focused on need-spaces such as beauty, everyday health, gut health and sleep. Post the pandemic, consumers are more conscious of the need for preventive care and are focusing on health in a much more holistic manner

* Acquisitions are small in size with no material financial impact for now: The current annual revenue run-rate for OZiva and Wellbeing Nutrition are >INR1bn and >INR500mn respectively. The businesses are GPM-accretive to HUL with gross margin of c.55%. As is the case with several of the high-growth ‘start-ups’ in emerging categories, both businesses are likely spending much more to drive awareness, consumption and growth (Exhibit 6). The acquisitions are small in size and unlikely to materially alter the P&L profile of HUL for now, but management highlighted how its focused market-development efforts helped create an INR20bn business out of fabric conditioners and liquid detergents – two categories that didn’t exist till about ten years back.

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