Hindustan Unilever Ltd. announced on Monday that its board has granted an in-principle approval to spin off the company's ice cream business into an independent, publicly listed entity — a move aimed at maximising value for shareholders and enhancing operational focus.
In a statement filed with the stock exchanges, the consumer goods giant detailed that the proposed demerger will allow existing shareholders to receive shares in the newly formed entity in proportion to their current holdings in HUL. The demerger is contingent upon obtaining necessary regulatory approvals and shareholder consent, with the scheme of demerger expected to be placed before the board early next year.
"The demerger of the ice cream business will create a leading listed ice cream company in India," HUL said, adding that this will “have focused management with greater flexibility to deploy strategies suited to its distinctive business model and market dynamics, thus realising its full potential."
For the purpose of the proposed demerger, the board has also approved the incorporation of a wholly owned subsidiary. The India unit will continue to work with the global business.
In September, the Board constituted a committee of independent directors of the company to evaluate the prospects and way forward for the ice cream business following parent Unilever's decision to demerge the division. Based on the recommendation of the independent committee, the Board had announced the separation of the business in October.
A separate listed entity will unlock fair value for HUL shareholders and provide them with the flexibility to maintain their investment in the growth of the ice cream segment, HUL said, adding that this strategic demerger will also enable a smoother transition for the business and its employees.
Analysts have given a thumbs up to the plan.
"Value unlock by demerger is a good option," said Abneesh Roy, executive director, Nuvama Institutional Equities. "The demerger allows existing investors to have a pure-play ice cream entity, which is a high-growth business (15-20% CAGR potential) and has iconic brands such as Magnum, Cornetto and Kwality Wall's with 5-9% profit margins. Parent Unilever will also get shares in same proportion as its current holding, and when they eventually exit post listing, money goes directly to them." The ice cream business contributed to just 3% of HUL's revenue of Rs 58,154 crore in fiscal 2023. It is not a significant contributor to profitability either, making a case for the company to sell off the business in the future.
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