Hindustan Unilever Limited (HUL), one of India's leading fast-moving consumer goods (FMCG) companies, has reached a significant milestone in its strategic restructuring plan. The company announced that it has received approval from the National Company Law Tribunal (NCLT) for the demerger of its ice cream business, marking a crucial step in separating this segment from its main operations.

Key Details of the Demerger

The NCLT, Mumbai Bench, has sanctioned the Scheme of Arrangement for the demerger of HUL's Ice Cream Business Undertaking. This arrangement involves the transfer of the ice cream business to Kwality Wall's (India) Limited, a wholly-owned subsidiary of HUL. The scheme was approved under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013.

Rationale Behind the Demerger

The decision to separate the ice cream business aligns with the global strategy announced by HUL's parent company, Unilever PLC. The rationale for this demerger includes:

1. Distinct Operating Model: The ice cream business has a differentiated infrastructure for supply and distribution, requiring a separate capital allocation strategy.

2. Market Focus: The demerger will allow for a more targeted approach to the ice cream market, which operates in a high-growth category.

3. Brand Strength: The ice cream business has built iconic brands such as 'Kwality Wall's', 'Cornetto', and 'Magnum'.

4. Shareholder Value: The move is expected to unlock value for HUL shareholders, giving them the flexibility to invest in the growth journey of the ice cream business separately.

Share Entitlement Ratio

As part of the demerger process, HUL has announced the following share entitlement ratio:

For every one equity share of face value Re. 1/- held in HUL, shareholders will receive one equity share of face value Re. 1/- in Kwality Wall's (India) Limited.

Future Outlook

The creation of an independent, listed ice cream company is expected to sharpen focus and enable more tailored strategies for both HUL and the new ice cream entity. This separation is anticipated to facilitate:

• Enhanced management focus on respective business models
• Greater flexibility in deploying strategies suited to distinct market dynamics
• Potential for accelerated growth in the high-growth ice cream category

Compliance and Next Steps

HUL has confirmed that it will comply with all statutory requirements as mandated by the Companies Act, 2013, and rules and regulations made thereunder. The company is required to file the NCLT order with the Registrar of Companies within 30 days of receiving the certified copy.

As the ice cream industry continues to evolve, this strategic move by HUL positions both the core FMCG business and the ice cream segment for potential growth and value creation in their respective markets.

Hindustan Unilever Limited (HUL) has received an income tax assessment order demanding ₹1,986.25 crore for FY21, issued by the Assistant Commissioner of Income Tax in Mumbai. The order involves transfer pricing adjustments and challenges to corporate tax depreciation claims. HUL stated the order will not materially impact its financials and plans to file an appeal.

Tax Assessment Details

Quarterly Results

In its recent quarterly results, HUL reported:

• Net profit of ₹2,694.00 crore, exceeding expectations of ₹2,480.00 crore, aided by a one-time gain of ₹273.00 crore from resolution of tax matters.
• Revenue of ₹15,585.00 crore, up 0.5% year-on-year but below the expected ₹15,850.00 crore.
• EBITDA declined 2.3% to ₹3,563.00 crore with margins at 22.9%, down 60 basis points from last year.

Management Outlook

HUL's management expects margins to remain between 23-24% and anticipates a 50-60 basis points benefit post ice cream business demerger.

Market Response

HUL shares closed at ₹2,466.65, down 0.12%.

Stakeholders will be closely monitoring HUL's appeal against the tax demand and its potential impact on the company's financial position.