Nestle stands to gain the most with Horlicks acquisition, say experts

Two contenders — Nestle and Unilever — have emerged contenders for GlaxoSmithKline (GSK) Consumer’s Horlicks brand, which is on the block as part of a strategic review at the firm. 

While Unilever is looking to widen its food and beverage footprint in India with the deal, it is Nestle, say industry experts, which stands to gain the most with the acquisition, pegged at Rs 210-220 billion.

The review includes an assessment of the parent’s 72.5 per cent shareholding in GSK Consumer and will see the latter offload other consumer nutrition products in its portfolio, including Viva, Maltova, and Boost. 

GSK had said earlier that the review would be completed by the end of 2018. When contacted, a Nestlé India spokesperson said the company does not comment on market speculation.

But both Nestle and GSK Consumer, say analysts, have synergistic portfolios and ride on health and nutrition aggressively. “The acquisition of Horlicks will also help scale up Nestle’s health drinks play in the country, currently led by Milo,” said Abneesh Roy, senior vice-president, research (institutional equities), Edelweiss.

Nestle, said experts, is also keen to expand its nutrition business in the country in line with its global strategy. “In the last few years, Nestle increased its health and nutrition thrust, fortifying brands such as Maggi with nutrients and launching healthier variants across its portfolio. In the near future, it plans to foray into the adult oral nutrition, paediatric allergy, critical care nutrition and disease specific supplements,” said Sanjay Manyal and Kapil Jagasia, analysts at brokerage ICICI Direct, in a recent report.

Nestle had introduced Milo in India in a ready-to-drink format last year, pitching it as a healthy alternative for children. While Milo is available across the world, Nestle has been pushing the brand aggressively in developing countries located in Africa, Asia and South America. 

The addition of Horlicks, say experts, is expected to boost its prospects even further in a category where it does not enjoy leadership in India. In markets such as Indonesia, Malaysia, Peru, Colombia, central and west Africa, Milo is a popular health drink, said experts.

As things stand now, Horlicks has an all-India market share of around 43 per cent, according to industry estimates. Mondelez’s Bournvita brand has a market share of around 15 per cent, while Complan, which was recently acquired by the Ahmedabad-based Zydus Cadila Group from Kraft Heinz, has a 6 per cent share.

While health food drinks, as a category, was pegged at Rs 60 billion in size, it has been slowing in the last few years in India. Despite this, players such as Nestle may not be significantly affected, say experts. 

The company may introduce innovations in terms of flavours, formats and pack sizes aggressively in a bid to grow and create excitement in the marketplace.