OZiva buyout to improve HUL's health and wellbeing in long-run: Analysts

HUL is currently present at the mass end in supplement and wellness space through Horlicks. OZiva & Wellbeing Nutrition acquisitions will help grow presence in the premium segment

Hindustan Unilever has announced foray into the 'health and well being' segment with the acquisition of 'OZiva' and 'Wellbeing Nutrition'. While the move may not move the needle much on the company's profitability front, the additions signify HUL's clear intent to be an early-entrant and build its H&W franchise in India, analysts said on Friday.

"While targets are insignificant in the context of HUL's current revenue and profit base, we like the management's growth mindset and focus on identifying future consumer needs and trends," said Vivek Maheshwari of Jefferies, in a co-authored report with Kunal Shah and Jithin John.

The foray is in-line with the global phenomenon where Parent firm Unilever has itself acquired seven such brands over the last four years and built a 1-billion euro business.

Following the development, shares of Hindustan Unilever gained for the fifth straight session on Friday. The stock gained 1.4 per cent and hit a fresh 52-week high at Rs 2,741 in the intra-day. It ended at Rs 2,721, up 0.74 per cent on the BSE. The S&P BSE Sensex, meanwhile, settled 0.62 per cent down, while BSE FMCG index gained 0.7 per cent.

The deal

On December 8, HUL announced buying a 51 per cent stake in Zywie Ventures, which sells plant-based and clean-label consumer wellness brands under the name OZiva, for Rs 264.28 crore. OZiva clocked revenues of Rs 120 crore in the financial year 2021-22 (FY22; 6-times over FY20-22).

Besides, HUL will also take up a 19.8 per cent stake in Nutritionalab, which houses its products under the brand name Wellbeing Nutrition, for Rs 70 crore. The company clocked revenues of Rs 19.4 crore in FY22, 9-times over FY19-22.

The deals are expected to be completed in one-three months, as per management. The Health & Wellbeing category will be a part of HUL’s beauty and personal care (BPC) segment.

The management further said Health & Wellbeing has a potential market size of Rs 30,000 crore over 4-5 years. With these acquisitions, the company will focus on high growth areas such as sleep & stress, women's health, gut health, beauty-from-within and plant-based products.

What's in it for HUL?

HUL is currently present at the mass end in supplement and wellness space through Horlicks. These acquisitions will help grow presence in the premium segment as it will have 8x realization in OZiva vs base variant of Horlicks, said Amnish Aggarwal of Prabhudas Lilladher.

Further the businesses are gross profit margin-accretive to HUL with gross margin of 55 per cent.

Analysts believe HUL is well-placed to grow its Health & Wellbeing franchise both through organic/inorganic means, and support scale-up/value unlocking of these acquisitions.

"In the past, HUL ramped up Indulekha and VWash sharply, post-acquisition. With start-up capital drying up for small D2C players, we expect further consolidation to happen in this space, which will favour large FMCG players such as HUL," said Abneesh Roy of Nuvama Institutional Equities.

Analysts at Jefferies added that over time, HUL will create a separate Health & Wellbeing team, housed under the BPC vertical for this foray. It targets to further expand the portfolio, both through inorganic and organic routes. HUL will also look to bring some of Unilever's global brands in health and wellbeing to India.

Analysts' one-year target prices range from Rs 2,230 to Rs 3,175, indicating an upside of up to 16.7 per cent from current levels.