HUL to ITC, why FMCG biggies are seeking wealth in health

Salt-to-cigarettes conglomerate ITC Ltd. is picking up a significant stake in the homegrown start-up Sproutlife Foods Pvt. Ltd. (SFPL) that owns popular health food brand Yoga Bar. The Kolkata-headquartered major will initially pick up a 39.4 per cent stake against Rs 175 crore by mid-February, with an intention to acquire the rest of SFPL by 2027.

At Rs 445 crore - roughly 6.5 times of SFPL’s FY2022 sales - the deal is being struck at a reasonable valuation, says analysts at Nuvama Institutional Equities. In FY2022 the company had reported Rs 68 crore sales - 74 per cent higher than Rs 39 crore it had raked in the previous year.

The move comes nearly a year after ITC acquired a 16 per cent stake in the Chandigarh-based premium ayurvedic personal care company Mother Sparsh at a valuation of Rs 125 crore, reflecting the consumer goods major’s growing interests in the health & wellness space.

ITC is not alone though. Rival Hindustan Unilever (HUL) has embarked on the same path of late. After acquiring the Horlicks portfolio from GSK Consumer Healthcare in 2018, the country’s largest fast moving consumer goods (FMCG) player recently picked up stakes in two health & wellness start-ups for Rs 334 crore. While, it acquired a 51 per cent-stake in Zywie Ventures for Rs 264 crore, with intentions of buying rest of the shares after three years based on a pre-agreed valuation criteria. Additionally, HUL picked up 19.8 per cent in Nutritionalab for Rs 70 crore.

As per a recent analysis by financial research and advisory firm Prabhudas Lilladher, malnutrition among a wide section of Indians (over 50 per cent suffer from anaemia, 80 per cent have vitamin-D deficiency, 67 per cent are zinc and/or micronutrient deficient) led HUL to focus on the segment.

According to EY, the health supplements market in India is growing at a CAGR of 15 per cent - much faster than the single digit growth rate for the overall FMCG market. As a result, the health supplements market is estimated to have grown beyond Rs 33,000 crore already. The advent of the Covid-19 pandemic has only drawn more Indians towards the category with many taking up fitness classes and activities, consuming naturally-sourced foods, health supplements and following specialised diets.

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