HUL sells its bread, bakery business to Nimman Foods

Hindustan Unilever Ltd (HUL) has sold its bread and bakery business under the Modern brand to Nimman Foods Pvt. Ltd, a company backed by private equity fund Everstone Group, for an undisclosed amount.

The sale is in line with HUL’s strategy to exit its non-core businesses, the company said in a notice to the stock exchanges.

The Modern business is part of the packaged foods division of India’s largest consumer packaged goods company. “While we do not report this separately, the turnover of the (Modern) business is around ₹ 250 crore. The business is a profitable business,” HUL said in an email reply to a query. Under the brand, the company sells a complete range of bread and bakery products. The business currently has six operating manufacturing units and a network of franchisees across India.

“Since it’s acquisition in 2000, HUL has strengthened the Modern business, driven consistent top-line growth and significantly improved profitability. Having turned around the business and built a sustainable growth model, we believe that the sale to Everstone will unlock the full potential of the Modern brand,” said Sanjiv Mehta, chief executive officer and managing director at HUL, in a statement.

HUL acquired 74% in Modern Foods in January 2000 when the government decided to sell its holding in the company as part of it’s privatisation programme. In 2002, HUL purchased the government’s remaining stake in Modern Foods.

HUL’s entry into bread is a strategic extension of the company’s wheat business, the company had said on its website. Since then, the company has adopted a strategy to exit its non-core business and this deal is part of that.

“HUL had acquired the company under the government’s disinvestment programme. However, the unit is a misfit for the company and has always been challenging for them with labour problems and low margins,” says Pankaj Gupta, practice head, consumer and retail, Tata Strategic Management Group.

“Despite low growth in bread industry due to challenges posed by other breakfast options and low entry rate in the segment, Modern Foods managed to maintain leadership position in most of the markets,” HUL had said in its annual report for 2015 while maintaining that its ability to innovate fast with value-added product range such as oats bread, rusk and cakes, helped Modern Foods stay ahead in the market.

Bakery is part of the larger baked goods segment that is dominated by biscuits. HUL and Britannia Industries Ltd are the only two companies with a pan-India presence in the sector, selling bread and such products. However, the space is dominated by niche bakeries as consumers are moving from bread made from processed wheat or maida to consuming different kinds of value-added breads that are healthier, said Gupta, making it tough for national companies to sell bread to the masses.

The HUL stock fell 2.15% to ₹ 802.45 on a day when the BSE’s benchmark Sensex rose 1.7% to close at 25,317.87 points. The announcement was made after the market closed.

For the Everstone Group, the India- and South-East Asia-focused private equity (PE) firm, this is another marquee deal in the consumer space.

Everstone has several investments in the food and beverages space including Burger King India, Pan India Food Solutions Pvt. Ltd (Blue Foods), food products maker Capital Foods Ltd and wine maker Sula Vineyards, among others.

Everstone group has over $3 billion in assets under management.

“Modern is a marquee brand which has strong recall and a long standing history. Everstone is committed to making significant investments in not only unlocking the brand’s true potential, but also, once again, managing it as an independent company,” said Sameer Sain, co-founder and managing partner of the Everstone Group, in a statement.

So far this year, PE and venture capital investors have closed 33 deals in the retail and consumer sectors valued at $326 million, according to data from Grant Thornton. In 2014, 44 deals worth $735 million had been closed in these two segments, the data shows.

Swaraj Singh Dhanjal contributed to this story.