HUL's ice cream business demerger grabs spotlight; shares may see action

Hindustan Unilever Ltd (HUL) has announced the demerger of its ice cream business into an independent listed entity, a move aimed at unlocking shareholder value. The business, which contributes approximately three per cent to HUL’s revenue, includes popular brands like Kwality Wall's, Cornetto, and Magnum.

Key details of the demerger

HUL's board has granted in-principle approval for the demerger and authorized the management to initiate preparatory steps. The decision aligns with recommendations from an Independent Committee formed in September 2024, which identified the ice cream business as having a distinct operating model with specialized cold chain infrastructure and a unique distribution framework.

Existing HUL shareholders will receive shares in the new entity proportionate to their holdings, subject to necessary legal and regulatory approvals. The separation is expected to enhance operational focus, leveraging the growth potential of the ice cream segment as an independent business.

Financial performance and market impact

HUL reported a four per cent year-on-year (YoY) decline in standalone net profit for Q2 FY24, at Rs 2,612 crore compared to Rs 2,717 crore in the same quarter last year. However, revenue from operations grew by two per cent YoY to Rs 15,319 crore.

The company’s shares gained one per cent on Monday, closing at Rs 2,474. Over the last year, the stock has dipped by one per cent but delivered an impressive 22 per cent return over the past five years.

Global context and future roadmap

This move follows a similar restructuring by HUL’s UK parent, which spun off its ice cream unit housing Magnum and Ben & Jerry's earlier this year. HUL aims to finalize the separation approach by December 2024, as stated during the announcement on October 23.

The demerger of the ice cream business signals a strategic push by HUL to sharpen its operational focus and drive shareholder value creation. With robust brands under its portfolio, the new entity is poised to explore standalone growth opportunities in India’s evolving FMCG landscape.