FMCG major Hindustan Unilever's divestment of Pureit signals strategic shift amid market challenges

Amid slowing growth and challenging market conditions, Hindustan Unilever (HUL) is selling off its water purification business Pureit to US-based water technology company A. O. Smith that is currently looking for a strong foothold in the local market.

Launched in 2004 and later expended to pan-India, HUL’s Pureit brand is primarily focused on home water purification products and it widely available at consumer electronics and appliance stores across the country. As per Nuvama Institutional Equities, despite its wide presence, the business raked in Rs 293 crore in sales for HUL in FY24 - or less than 0.5% of its yearly top-line of Rs 60,469 crore. While the size of the deal is not specified by HUL or the buyer, industry experts estimate its enterprise value to be around Rs 600 crore.

According to Rohit Jawa, CEO & Managing Director of HUL, the move is in line with HUL’s “strategic intent to focus sharply” on its “core categories”. “Pureit provides essential water purification solutions to millions of loyal consumers, and I am confident the brand will thrive further under the ownership of A. O. Smith,” he said.

Industry experts suggest, the move is in the right direction. The largest FMCG player in the country has been facing a challenging environment with consumer demand in FMCG remaining subdued for nearly three years. With steep inflation leading to steady price hikes, demand for mass market products are under stress. Under the circumstances, HUL is betting on spending more to lure urban consumers towards its premium portfolio. And according to Jawa, in building categories through marketing and premiumisation is the need of the hours for HUL.

“Water purification business is hyper competitive and very different from a typical FMCG kind of business; it is much more of a consumer durable kind of business. Also product differentiation is not easy and pricing is a key disruptor here,” pointed out Abneesh Roy, Executive Director at Nuvama Institutional Equities.

For A.O. Smith, the Wisconsin, US-based water technology company that specialises on water heaters, purifiers and pumps, the deal may prove to be crucial for its expansion plans in the region. Apart from Pureit’s wide presence across the 100,000-odd electronics retail network in India, the brand’s familiarity amongst local customers may come handy for its sales and marketing teams, say experts.

“We believe the addition of Pureit will strengthen our leadership position as a global supplier of premium water treatment products and will double our market penetration in South Asia. The acquisition will also support our corporate strategy by enhancing our premium product portfolio and distribution capabilities,” said Kevin J. Wheeler, Chairman and CEO of A. O. Smith Corporation.

The company reported a 3% rise in sales in 2023 to US$ 3.9 billion or Rs 32,370 crore. While its India business grew 15% due to strong demand for water heater and water treatment products.

According to Parag Kulkarni, President, A. O. Smith India, Pureit’s “strong brand recognition” and the team’s deep understanding of consumer needs and water treatment expertise adds tremendous strength to A. O. Smith’s business in India. While the India business remains considerably small for the US-based water technology major, addition of Pureit brand to its portfolio is a right fit for the company and will help boost its expansion plans.