Modern Food Industries, the wholly owned subsidiary of consumer goods giant Hindustan Lever, is exiting the Rs 100 crore (Rs 1 billion) supplementary nutritionals business following the lack of government orders post-divestment.

The business contributed 46 per cent to Modern Foods turnover, and was more profitable than its mainline breads business.

Hindustan Lever took over 74 per cent of government equity in Modern Food in 2000 and subsequently bought out the remaining stake in 2002. The Uttar Pradesh government was Modern Foods' largest client for the business.

In the last three years, the division has supplied over 90 per cent of its produce to the government agencies. But now, Modern Foods does not enjoy the preference it used to when it was government-owned.

"This has had a major impact on the company and the facility at Delhi has been closed," said senior Hindustan Lever executives. Supplementary nutritional foods are a mixture of wheat flour, soya and sugar.

After acquiring management control in Modern Food, Hindustan Lever had implemented a strategy to turn around the company.

For 2002, it posted an operating profit of Rs 5 crore (Rs 50 million) before interest and restructuring costs against a loss of Rs 8.6 crore (Rs 86 million) in 2001.

The company recorded a 156 per cent increase in profit before interest and tax in 2002 and an 88 per cent increase in net profit.

HLL has been working out synergies with Modern Foods through an integrated wheat sourcing model for its products such as chappatis, breads across the country.

Hindustan Lever has been betting big on its foods business and investing and focusing on its power brands -- Modern, Kissan, Knorr and Annapurna among others -- as part of its restructuring exercise.