LT Foods hope to grow faster after acquiring HUL’s rice brands
Hindustan Unilever Ltd has agreed to sell its rice exports business to LT Foods for Rs 25 crore as part of its strategy to exit non-core business. For LT Foods, it is a win-win situation as the HUL brands will drive its business in overseas markets. Speaking to Bloomberg TV India’s Sunanda Jayaseelan, LT Foods chairman and managing director Vijay Kumar Arora says the HUL’s iconic rice brands Indus Valley and Rozana will definitely fetch better margins for the company. With the acquisitions of HUL rice brands and the tie up with Future Group, LT Foods hopes to sustain 15-25 per cent growth in business, he said.
SUNANDA: Why have you decided to go ahead to buy the rice business of HUL?
VIJAY: The HUL rice brands ‘Gold Seal Indus Valley' and 'Rozana’ have a very strong equity especially in the Middle-East. And these brands were in the market since last 30 years. So we felt that these brands have a very good synergy with the growth path of the LT Foods. Since LT Foods’ main or primary business is in the basmati rice segment and these brand only cater to the basmati rice consumers, so this acquisition was really fit for the growth of the LT Foods.
SUNANDA: You have also tied up with Future Group. What synergy is going to play out with this acquisition of HUL brands?
VIJAY: The tie up with Future Group has a different aspect of the growth and the acquisition of HUL rice brands has a different aspect of the growth. That (tie up with Future group) is for the manufacturing of the sona masoori rice. The company has a mandate to grow and expand itself into different varieties of rice. So this sona masoori rice, which is good for consumers of South India, and other parts of India and the export market wherever the South Indian people are staying. Big Bazaar was also having a good requirement of the sona masoori rice. That will help us in growing the regional rice segment. This (HUL brands) will help us grow in the basmati rice segment in the Middle-East especially and will flow into other segments of the world too. So, both will grow simultaneously in different segments of consumers.
SUNANDA: There are concerns over different businesses of HUL especially the rice business is concerned. What type of margins are you expecting in this business?
VIJAY: Indus Valley and Rozana, which are the iconic brands, will definitely fetch better margins. So this will strengthen our margin structure in the business. And the sona masoori rice, which is different from rice expansion plan, has a good market potential in the United States and Singapore side, where we have a significant population of South Indians. Both have a different revenue models for the company.
SUNANDA: How soon will this deal with HUL close? I am assuming that there will be an inventory that already exists now in the retail format, which you will possibly have to phase out. What is going to be the time frame by which you expect this integration to be completed?
VIJAY: The Indus Valley and the Rozana deal will be integrated soon as only the last leg is left for the Competition Commission of India’s (CCI) approval. And hopefully next 30-60 days, we will complete the rest. We were working on this acquisition since last one year. So we are just around the corner to start taking over the business into our structure. In case of the JV with Big Bazaar, we are expecting the sale in the market by July-August.
SUNANDA: You do have a strong presence in the US market. What is the plan to take both of these brands there as well?
VIJAY: Yes these brands are already there in the US. So we will try to further strengthen this brand in the US market.
SUNANDA: What type of growth are you looking at during FY17? Is there any plan to tap any new market and revising prices?
VIJAY: We are looking to sustain growth rate of 15-25 per cent, which we are doing in the last 7-8 years. And so the company has good plans to grow for the next one year also in the same rate as we did in the last year.