HUL to sell its rice business to LT Foods

The country’s largest household goods maker Hindustan Unilever (HUL) today informed stock exchanges that it has signed an agreement for the sale of its Rice Exports business carried out primarily under the brands ‘Gold Seal Indus Valley’ and ‘Rozana’ to LT Foods. LT Foods is the Delhi based company, which is the owner of the famous brand for Basmati rice, "Daawat".

HUL’s decision to divest is in line with its strategy to exit non-core businesses, while continuing to drive its growth agenda in the core packaged foods business. The deal envisages transfer of the brands and inventory for a consideration of Rs 25 Crores, subject to adjustments on closing.

HUL began exporting premium Basmati rice in 1985 under the brand ‘Gold Seal Indus Valley’ to various countries in the Middle East and Europe, which was subsequently extended to other brands and geographies. With the business operating across 21 countries, the current portfolio comprises of Brand Gold Seal Indus Valley Basmati Rice operating in Premium segment & Rozana Branded Basmati Rice operating in mid segment. The brands registered a turnover of Rs 51 Crores as per financials for the year 2014-15.

For LT Foods, the acquisition will strengthen its position in the Middle Eastern Market, as it gives them entry in the market of Qatar, Oman and Bahrain in addition to strengthening their existing presence in Saudi Arabia, UAE, Kuwait. Apart from GCC markets, the brand also enjoys latent equity across India, North America, some of the European Union and Asian countries. The acquisition will be funded by debt and internal accruals.

On the financial front, HUL's total revenue from operations increased by 2.66 per cent Year on Year (YoY) to Rs 7981 crores in Q3FY16 from Rs 7774 crores in Q3FY15. EBITDA stands at Rs 1431 crores compared to Rs 1332 crores in Q3FY15, an increase of 7.46 per cent YoY. EBITDA margin stands at 17.93 per cent in Q3FY16 compared to 17.13 per cent for thesame period last year. The net profit stood at Rs 971 crores, a decrease of 22.42 per cent YoY. The substantial decrease in net profit is attributed to losses from exceptional items of Rs 80 crores this quarter, compared to gain of Rs 397 crores in Q3FY15.

LT's total revenue from operations increased by 2.66 per cent Year on Year (YoY) to Rs 727 crores in Q3FY16 from Rs 708 crores in Q3FY15. EBITDA stands at Rs 76 crores compared to Rs 63 crores in Q3FY15, an increase of 21.76 per cent YoY. EBITDA margin stands at 10.51 per cent in Q3FY16 compared to 8.86 per cent for the same period last year. The substantial increase in EBITDA is attributed to decrease in raw material consumption of company, which fell to Rs 297 crores this quarter from Rs 381 crores in Q3FY15. The net profit stands at Rs 19 crores, an increase of 67.75 per cent YoY.

The stock of HUL is trading at Rs 840.45, a decrease of 1.04 per cent from the previous close and  LT Foods is trading at Rs 237.10, an increase of 6.13 per cent from the previous close.