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Nutricia to ride Lever's sales network for 3 years

Nandini Goswami

Calcutta, June 25: Nutricia (India) Pvt Ltd, which is buying the dairy business of Hindustan Lever Ltd, will initially use the sales and distribution network of HLL for three years at a negotiated fee of two per cent of annual sales turnover.

Highly placed sources told The Financial Express

that this arrangement will contribute around Rs 2 crore a year to HLL's revenues, covering operating costs for these services.

The Indian unit of The Netherlands' Nutricia International BV is paying around Rs 19.5 crore for the dairy products business, essentially the Etah unit in Uttar Pradesh.

HLL has an integrated sales and distribution network for its vanaspati, edible fats and oils and culinary products. Nutricia will get to use this vast chain.

According to the deal, HLL will sell its Anik and Anikspray milk trademark to Nutricia. However, the Milkana trademark will only be transferred to Nutricia for five years after which it will revert to HLL.

HLL's instant tea manufacturing plant, a 100 per centexport unit, is also in the Etah factory. With Nutricia buying the Etah factory, it has been decided that the tea factory's land will be leased back to HLL at a nominal rent of Rs 20,000 per annum.

For the same reasons, it has been agreed that Nutricia will extend all common services and utilities to the instant tea plant on a cost-sharing basis. The reverse will also apply. This clause of the deal will save each company the cost of setting up similar facilities.

HLL's decision to sell its dairy business, which included milk products and ghee, was prompted by the decline in turnover of these lines over the last few years and their marginal contribution to profits.

Turnover of the dairy business was Rs 87 crore out of HLL's total of about Rs 9,500 crore for the year to December 31, 1998.

Also, dairy business is not a core area for parent Unilever Plc.

The Etah unit, which has around 150 permanent workers in the dairy plant, was transferred to the erstwhile Lipton India in 1983-84 as part of thereorganistaion of the then foods business of the company. The dairy business became an undertaking of HLL in March 1997 after the amalgamation of Brooke Bond Lipton India Ltd with HLL.

A due diligence report suggested that HLL could get Rs 19.5 crore for its milk business. This included the cost of working capital, but excluded the value of finished goods. In this case, the finished goods will be transferred to Nutricia, which pay the actual cost on the transfer date.

HLL expects to get an extra Rs 7 crore from the finished goods, netting a total of Rs 26.5 crore from the sale of the business, barring variations in working capital figures.

HLL has not done a separate valuation of the Etah undertaking, given that the net book value of the plant and milk collection setup is pretty low -- Rs 9.5 crore.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.

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