Orkla ASA's Strategic Overhaul: Divesting for Growth and Unlocking Value via Orkla India's IPO

Orkla ASA (ORKA), the Norwegian consumer goods giant, is undergoing a transformative shift in its corporate strategy. By divesting non-core assets, sharpening its focus on high-margin segments, and advancing plans for its Indian subsidiary's IPO, the company aims to accelerate organic growth, improve efficiency, and meet ambitious 2026 financial targets. However, risks such as uneven segment performance and cash flow challenges remain critical to monitor.

Divesting Non-Core Assets: A Strategic Pruning

Orkla's portfolio restructuring has been a cornerstone of its strategy to simplify operations and allocate capital effectively. Recent divestitures, such as the sale of its Hydro Power portfolio and the Pierre Robert Group, reflect its commitment to shedding non-core businesses and reducing complexity. These moves align with a broader focus on high-potential segments, such as home & personal care and snacks, where the company has demonstrated strong EBIT growth.

The rationale is clear: capital returned from non-core assets can be reinvested in growth areas or returned to shareholders. This disciplined approach has already yielded results. For instance, Orkla Home & Personal Care achieved a 20% EBIT rise in Q2 2025, driven by volume gains and pricing strategies. Meanwhile, Orkla Snacks grew EBIT by 13%, despite cocoa cost pressures, by expanding its distribution in key markets and preparing to launch its BUBS brand in the U.S..

Focus on High-Performing Segments: Growth Drivers Identified

Orkla's emphasis on core segments is underpinned by robust organic growth. In Q2 2025, organic sales rose 3.8% year-over-year, up from 1.2% in Q1, signaling a positive trajectory. The company's EBIT margin improved to 10.3% on a rolling 12-month basis, nearing its 10.5-11% 2026 target. However, disparities across segments highlight execution risks:

• Strengths: Home & Personal Care (20% EBIT growth) and Snacks (13% EBIT growth) are outperforming.
• Weaknesses: Orkla Food Ingredients, which supplies food producers, saw a 21% EBIT decline in 2025, underscoring reliance on volatile input costs and customer demand fluctuations.

The company's 42.7% stake in Jotun, a leading paint manufacturer, also provides stability, with Jotun maintaining a robust ROCE of 32.2% despite a slight EBIT dip in 2025.

Orkla India's IPO: A Catalyst for Value Unlock

The jewel in Orkla's crown is its Indian subsidiary, Orkla India, which owns brands like MTR (ready-to-eat foods) and Eastern (spices). The subsidiary filed a Draft Red Herring Prospectus (DRHP) with India's SEBI in early 2025, signaling progress toward an IPO structured as a 2.28 crore share Offer for Sale (OFS). Key details include:- Valuation: Analysts estimate Orkla India's potential IPO value at ₹15,000–20,000 crore (USD $1.8–2.4 billion), driven by its strong brand equity and a 10.8% CAGR in India's packaged food market.- Structure: Proceeds will go to existing shareholders (Orkla Asia Pacific holds 90%, with promoters holding 10%), not Orkla India itself. This could provide liquidity to Orkla ASA, potentially boosting its balance sheet ahead of 2026 targets.- Growth Ambitions: Orkla India aims to expand its international footprint (currently 18% of revenue) and introduce new products like wet batter mixes, which have shown strong month-on-month growth.

Risks and Challenges to Consider

While Orkla's strategy is compelling, risks loom large:1. Cash Flow Pressures: Despite revenue growth, operating cash flow dipped to NOK 2.4 billion in H1 2025, down from NOK 2.8 billion in the prior year. Weak liquidity could constrain reinvestment in high-growth segments.2. Segment Disparities: Food Ingredients' struggles contrast sharply with Home & Personal Care's success. Sustaining growth in lagging divisions will test management's operational agility.3. Indian Market Competition: Orkla India faces fierce competition from regional players like DS Foods and Everest, as well as global FMCG entrants. Execution of its “grow and build” strategy hinges on market share gains and brand loyalty.

Investment Implications

Orkla ASA presents a compelling investment case for those willing to accept moderate risk. The IPO of Orkla India could unlock significant value, while portfolio simplification and focus on high-margin segments align with its 8-10% EBIT CAGR target. Key catalysts include:- IPO Finalization: A successful listing could boost Orkla's valuation and provide capital for strategic initiatives.- Cash Flow Turnaround: Management must address the cash flow decline to fund growth and dividends.- Segment Balance: Sustaining momentum in Home & Personal Care while stabilizing Food Ingredients will be critical.

Conclusion

Orkla ASA's strategic overhaul—divesting non-core assets, sharpening its focus on top segments, and advancing Orkla India's IPO—is a well-calculated move to drive growth and efficiency. While risks such as cash flow and segment disparities remain, the company's progress toward its 2026 targets (10.5-11% EBIT margin and 13% ROCE) positions it as a long-term play in the consumer goods sector. Investors should monitor Q3 2025 results for further clarity on cash flow and the IPO's timing. For now, Orkla's disciplined approach merits a cautious buy, with upside potential tied to execution in India and capital allocation discipline.