Hindustan Unilever Ltd. has decided to terminate the distribution agreement of GSK Consumer’s over-the-counter and oral care products by November 2023, nearly two years before the agreed period.
GSK runs separate businesses in India—a pharmaceutical vertical and a fast-moving consumer goods business under GSK Consumer Healthcare. GSK Consumer Healthcare markets the OTC and oral care brands, which include brands such as Otrivin, Iodex, Eno, Crocin, and Sensodyne.
When HUL bought GSK Consumer in 2020, they also won the distribution rights for the OTC and oral care brands, which are owned by GSK but were earlier distributed by GSK Consumer in India, for five years starting in 2020 on a commission basis.
“The company, GlaxoSmithKline Consumer, and GlaxoSmithKline Asia have mutually agreed and expressed their intention to terminate the agreements with effect from Nov. 8, 2023, and the one-year notice period of termination shall commence from Nov.9, 2022,” HUL said in a stock exchange filing. “This shall not have any material effect on the operations of the company.”
By the time the contract ends, it will have been three and a half years out of the initial five. “So only one and a half years would be left,” said Abneesh Roy, executive director, Nuvama Institutional Equities.
“HUL was earning about Rs 300 crore in gross income, but there were sales and distribution costs. So, even if it has some impact on the margins, for a company of the size of HUL, it won’t be significant,” he said.
In 2020, HUL merged with listed entity GlaxoSmithKline Consumer Healthcare Limited in a Rs 31,700 crore deal. Through the deal, the maker of Dove soaps got a ready-made portfolio of healthy food and drink brands, including Horlicks, apart from Boost, Maltova, and Viva.
In the deal—first announced in 2018—HUL acquired the brand Horlicks for India from GSK for Rs 3,045 crore. Horlicks, the largest health food and drink brand in India, commands over 60% market share in the category. HUL outbid rivals Nestle India and ITC Ltd. to acquire these brands in India, stressing the importance of GSK’s nutrition portfolio in the country. Besides, HUL also gained access to pharmacies, a channel that accounts for nearly 10% of total fast-moving consumer goods sales.
GSK’s consumer healthcare business is a joint venture between GSK and Pfizer, with GSK holding a majority controlling interest.