LT Foods CMD explains the rationale behind buying HUL’s iconic rice brands
Hindustan Unilever Ltd has agreed to sell its rice export business to LT Foods for ₹25 crore as part of its strategy to exit non-core business.
Speaking to Bloomberg TV India, LT Foods Chairman and Managing Director Vijay Kumar Arora said HUL’s iconic rice brands, Indus Valley and Rozana, will definitely fetch better margins for the company.
Why did you decide to go ahead with the purchase of HUL’s rice business?
HUL rice brands Gold Seal Indus Valley and Rozana have a very strong equity, especially in the Middle-East. And these brands have been in the market for 30 years. So we felt these brands have a very good synergy with the growth path of LT Foods. Since LT Foods’ primary business is in the basmati rice segment and these brands only cater to the basmati rice consumers, this acquisition was really be fit for the growth of LT Foods.
You have also tied up with Future Group. What kind of synergy is that going to play out with the acquisition of HUL brands?
The tie-up with Future Group has a different aspect of the growth, the acquisition of HUL rice brands has a different aspect of growth. That (Future group tie-up) is for the production of Sona Masoori rice. The company has a mandate to grow and expand itself into various varieties of rice.
Sona Masoori rice is good for consumers of South India, and wherever South Indians are staying, in India or abroad. Big Bazaar also requires this rice variety. The tie-up will help us in growing the regional rice segment.
This (HUL brands) will help us grow in the basmati rice segment in the Middle-East, especially, and will flow into other segments of the world too. So, both will grow simultaneously in different segments of consumers.
There are concerns over different businesses of HUL, especially the rice business. What type of margins are you expecting in this business?
Indus Valley and Rozana, which are the iconic brands, will definitely fetch better margins. This will strengthen our margin structure in the business. And the Sona Masoori rice, which is different from the rice expansion plan, has a good market potential in the US and Singapore, where we have a significant population of South Indians. Both have different revenue models for the company.
How soon will this deal with HUL close? There will be an inventory that already exists, now in the retail format, which you will possibly have to phase out…
The Indus Valley and the Rozana deal will be integrated as soon as we receive the last leg of approval from the Competition Commission of India. And hopefully in the next 30-60 days, we will complete the rest. We have been working on this acquisition since one year.
We are just around the corner to start taking over the business. In case of the joint venture with Big Bazaar, we expect to hit the market by July-August.
What type of growth are you looking at in FY17?
We are looking to sustain the growth rate of 15-25 per cent, which we have been doing in the past seven-eight years.