Hindustan Unilever India set the market ablaze when it announced the acquisition British company GlaxoSmithKline’s Indian consumer distribution network, GSK Healthcare Ltd. The deal bagged GSK Healthcare Ltd. a total of 31,700 crores in the form of cash and shares. With the deal, HUL bought the distribution rights of nutritional drinks such as Horlicks, Boost, and Maltova in India. Furthermore, the deal also gives HUL an 82% stake in GSK’s Bangladesh and other selected regions’ healthcare nutrition portfolio. The deal also paved the way for HUL to enter the pharmaceuticals business.

Here are the reasons why HUL pitched an all-share lucrative and formidable deal to acquire GSK:

A Gateway to Reign the Indian Nutritional Drinks Market

Horlicks, a nutritional drink, has been a prevalent brand in India for over 140-years now. The brand made its debut in India during World War I when Britishers shipped the health drink to Indian shores. Since then, Horlicks has dominated the Indian nutritional drinks market unrivaled. Currently, Horlicks holds over 40% share of the total revenue generated by health drinks in the Indian market and a 60% share when it comes to the volume of the market. Furthermore, the collective drinks portfolio of drinks sold by GSK holds a total market share of 55% in the Indian market.

When it comes to HUL’s food segment, the company had missed out on the health and dietary domain of the industry. With increasing awareness of health and wellness issues, the market is expected to grow leaps and bounds. The GSK acquisition has allowed HUL to enter the health food and drinks market unrivaled. Although the demand for health food drinks is still low at 24%, HUL can use its great distribution reach to market the product and benefit from the same. Currently, HUL’s food and refreshments segment earn it 18% in revenues but with the merger, the revenue is expected to rise to 28% and climb to 10,000 crores. The anticipated result will help HUL outdo its major competitors in Nestle, Britannia, and ITC to become the biggest FMCG company in India.

An Entry into the Pharmaceuticals Market

The merger has also landed HUL the rights to market and distribute over-the-counter pharmaceuticals which includes products like Iodex, Eno, Sensodyne, Otrivin, and Crocin for five years. With the deal, HUL has won itself an entry into the pharmaceutical business, a territory the FMCG giants had never explored before.

Hindustan Unilever plans to consolidate their position in the pharmaceuticals market through this venture. The company is expected to use its Indian subcontinent market stronghold to distribute the products under the pharmaceuticals portfolio. In turn, it expects to reap the benefits from the trust Indian consumers place in chemists while buying the products. The pharmaceuticals channel plays a pivotal role in revenue generation as it contributes to 6-7% in sales of FMCG companies and the rate is expected to climb to 10-12% in the foreseeable future. Further, the pharmaceutical channel expands at 20% annually when it comes to consumer goods. All the facts and figures back HUL’s decision of acquiring the pharmaceuticals channel for five years and the company is expected to generate substantial profits from the same.

The merger is already proving a success for HUL who are earning accretive since the finalization of the deal. The company’s share rose to over 4% to close at Rs.1825.90 on Tuesday. With the merger, HUL gained GSK’s market share of Rs.4,200 crores in sales with a network of over 800,000 retail outlets. Combined with HUL’s current market outreach, the network is expected to spur the company’s turnover and revenue in the forthcoming future.