Srinivas Phatak is the executive director, finance and IT and chief financial officer of Hindustan Unilever Limited (HUL). He is also the vice president finance for Unilever, South Asia. Phatak, 46, said the merger with GSK provides an opportunity for HUL to play in the largest health food drinks market in the world.
In one of the biggest deals across the consumer goods space, HUL has bought GSK's India business for around $3.8 billion. The deal increases the consumer goods giant's footprint in one of the world's fastest-growing economies.
"We are actually quite excited because it is a transformative proposed merger," Phatak said. In an exclusive interview to CNBC-TV18, Phatak also discussed the company's future plan and its expectations, among other things.
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What about the strategy for Horlicks?
The way we need to approach this category is through the lens of market development. All India penetration of the health food drinks (HFD) segment is about 24 percent. If you look at rural, it is about 14 percent. If you look at some of our most advanced categories, our penetrations are as high as 80 percent. So that starts to give you the possibility and the opportunity of what you can do with this business and that is why we said that we expect this business to grow in double-digits into the medium-term.
Clearly, there are three-four elements. We will work on the product, we will look at the communication and distribution is absolutely going to be playing to our strengths and that is where we can make a difference. All three will be at play and we are quite confident about growing this business well.
What about the brand extension and the reason I ask is I see a competitor like Bournvita, it is in the malt food drinks (MFD) category plus it is biscuits. The biscuit segment is a Rs 25,000-30,000 crore kind of an opportunity or market, so would you look at Horlicks biscuit or any other brand extension in future?
First and foremost our focus is going to be on the HFD category, it is a Rs 7,700 crore category, easily can grow in double digits into the near future. Have talked about the penetration levels and with Horlicks and Boost we are getting some couple of iconic brands. Therefore, I think the first focus in the first few years for us is to go behind the HFD opportunity and to realise the benefits of this. In due course, we will look at the rest of the portfolio. There are some very interesting nuggets but first and foremost, it is about HFD.
This is a new category for you and one which is slowing down, would you be a bit concerned about the MFD segment?
Predominantly, this category has grown at about 14-15 percent for over a decade and done very well. If you look at it from a demographic point of view, if you look at rising affluence, if you look at it from the micro-nutrient needs of the kids, there is ample headroom to grow. I think, as a market leader, the bigger opportunity is leading market development and increasing the size of the price, therefore, I think it is a fascinating category, a brand of the future, we are not at all concerned about any slowness. We are quite confident that this category we will grow into the double digits into the medium-term.
People are concerned on account of the higher sugar content in these drinks, so how are you going to tackle that is there any kind of disruption that you are planning in the key product?
I think it is also important to dispel some of the myths. The sugar content that has been talked about is not that bigger concern. Having said that it is still at very healthy levels in the overall portfolio. There is a strong set of innovations to really cater to different needs and from whatever we have seen they have their products, they have the R&D and we will be looking at all that aspects post the merger because today we have actually bought into that asset. But one needs to remember that at least 9-12 months away before we actually get the merger done.
You have spoken about synergies of 800-1000 basis point. How will you achieve it and by when?
What we have really talked about is that the opportunities are across the value chain. First and foremost the way to look at synergies is that it all comes from the strength of an existing HUL business. We are a Rs 35,000 crore business and we are adding 10 percent, so, therefore, the whole infrastructure and what you have you will leverage and we have called at about 4-5 areas. Clearly, in the whole space of supply chain, logistics, distribution, warehousing, you will ride on the strength of HUL distribution that is going to be a big plus.
The way you go to market in terms of your distribution and now you are going to costs out that is going to be an important one. We spend media and non-media which is 7x what GSK does, therefore, buying scale, sophistication or technology that we have is going to really help us unlock cost.
In due course, we will get general and administrative overheads that will also come through. The first and foremost focus is the proposed merger get the approvals. The second focus is really going to get the integration done then we really need to get the growth momentum and then the savings will come. I am not going to give you a timeframe but we are very confident of the size of the price and all our effort will be in trying to see how much can we realise it earlier on the business case than later.
4-5 years would be a rough estimate?
A medium term would be a good space to start counting them most of the synergies coming through would be a good time point to look at.
