Kwality Wall's Bets On Aggressive Expansion In 'Under-Penetrated' Indian Ice-Cream Market

Kwality Wall's India, the demerged ice-cream brand of Hindustan Unilever Ltd, is betting on under penetration of the category, limited distribution reach and changing consumer behaviour towards premiumisation as the main growth levers to accelerate growth for the newly listed company.

The management believes the category is structurally positioned for multi-year double-digit growth, driven by urbanisation, electrification and rising discretionary spending despite the category being seasonal and capital intensive.

"Ice-cream as a category is significantly under-penetrated in India," Prashant Premrajka, chief financial officer of Kwality Wall's India, said, pointing out that the per-capita consumption stands at just 0.5 to 0.6 litres, compared with 5-13 litres in developed markets. "This gives us a very long headroom for growth, and that is what underpins our confidence in the ice cream category."

Talking about the consumer behaviour, Chitrank Goel, deputy managing director of Kwality Wall's India, said: "Ice-cream, once viewed as a discretionary summer indulgence, is increasingly being positioned as an anytime consumption category. This shift in consumer behaviour underpins the company's confidence in sustained volume growth."

Distribution remains the first and most critical lever. Out of nearly 13 million FMCG outlets across the country, ice-cream is available in only about one million stores. "Access and availability are the biggest jobs to be done for this category," Goel said, adding that consumption increases meaningfully once ice-cream becomes easily available closer to the consumer.

Kwality Wall's plans to aggressively expand its cabinet footprint, particularly beyond metro cities. "We will continue to ensure that access reaches Tier 2, Tier 3 and Tier 4 towns as urbanisation and electrification increase.This front-end expansion is central to driving volumes and creating repeat consumption habits," he said.

The company plans to continue investing in cabinets, cold rooms and factories to ensure product quality is maintained across the supply chain. While these investments weigh on profitability in the near term, they are seen as essential for long-term differentiation. "Quality is not just a brand promise for us; it is an ethic of how we do business," Goel added.

From a financial standpoint, the company acknowledged that ice-cream differs materially from traditional FMCG businesses. "It is a different business, it has higher growth potential, but also lower Ebitda margins and higher capital intensity," said Premrajka. As a result, valuations may look discounted compared to classic FMCG peers, but we believe this gap can narrow with scale and execution, he added.

"Our focus as a management team is very clear to grow in competitive double digits and to realise the margin improvement opportunities we have identified,” he said. Current Ebitda margins, he explained, reflect years of supply-chain investments. As volumes scale up, operating leverage is expected to improve margins and return on capital employed over time.

The recent GST cut on ice-cream from 18% to 5% is expected to further support demand by improving affordability. However, management stressed that growth will remain primarily volume-led. At the same time, the company is focused on delivering long-term shareholder value through a clearly defined margin improvement roadmap.

Capital expenditure will also remain an integral part of the company's strategy. Cabinet deployment, factory expansion and cold-chain investments are all essential to sustaining double-digit growth. As a result, free cash flow will be a function of annual capex intensity. Management emphasises that operating cash flow, rather than free cash flow, is the more relevant metric at this stage of the growth cycle. Capex allocation will remain flexible and closely tied to volume visibility.

Commodity volatility, particularly in dairy and sugar, remains a key risk. To manage this, the company said it relies on a combination of hedging, long-term supplier contracts and R&D-led ingredient flexibility. A wide price pyramid, ranging from Rs 10 to Rs 100, allows the company to cater to diverse consumer segments while maintaining pricing discipline. Calibrated price increases remain an option if cost pressures persist.

Capital expenditure will continue to remain elevated. “When we put in cabinets, we deploy capex. When we grow in double digits, we have to invest in factories,” management said. Over the next decade, the company sees sufficient opportunity to justify continued investments. “Operating cash flow is more important for us at this stage,” it said, adding that free cash flow will depend on how much capital is deployed each year based on volume visibility.

In competition, management struck a measured tone. “This is not about market share today; it's about growing the total category,” Goel said. With consumption levels still low, the focus remains on expanding the overall pie rather than aggressive price-led competition.

Following the demerger, the company now operates with an independent board and management team. While transitional service agreements with HUL remain in place for select technology functions, management emphasised that operational decision-making is now fully independent.

For investors and market watchers, the company highlighted a clear set of metrics to track over the next few summers. "Growth is the single most important metric for us," management said, followed by distribution expansion, supply-chain cost discipline and the trajectory of margin improvement. "We are a growth-oriented business, and we believe scale will ultimately translate into stronger profitability and returns."

ASLO READ: Ice Cream Major Kwality Wall's Lists At Rs 28.5 On Bourses After Demerger From HUL

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