Ruling the FMCG industry ft Hindustan Unilever – A primer on the stock

With softening in input cost, we are witnessing increased competitive intensity in the market. If you look at media deployment, which saw a steep reduction during high inflationary period has started normalizing and is now at 95% of June quarter 2019. With increasing share of digital spend in A&P, one can anticipate that the overall media deployment is now very similar to pre-Covid levels.

Ritesh Tiwari, CFO

Stock data

Ticker	HINDUNILVR
Exchange	BSE and NSE
Industry	FMCG

Price Performance:

Last 5 days	-0.47%
YTD	-1.65%
Last 1 year	-1.89%

Company description:

Founded in 1933 and headquartered in Mumbai, HUL is a subsidiary of Unilever, a global consumer goods giant. The company is one of India’s largest and most well-established consumer goods companies consisting primarily of Home Care, Beauty & Personal Care and Foods & Refreshment segments.

Business Segments:

1. Home Care:

HUL’s Home Care segment includes a range of products aimed at household cleaning and maintenance. It benefits from a large portfolio that straddles the economic pyramid with strong presence of brands across the mass, popular and premium segments.

Some of the popular brands in this segment include:

1. Household care – Vim, cif, Domex, Sunlight, nature protekt
2. Fabric Wash – Comfort, Wheel, Rin, Surf excel, Love & care
3. Purifiers – Pureit

2. Beauty & Personal Care:

This segment focuses on personal care and beauty products, catering to a wide range of consumer needs. The company has a wide-spread portfolio of more than 900 SKUs spread across one or more of categories which are made for 14 consumer clusters identified in India.

Notable brands include:

1. Skin Cleansing – Dove, Lifebuoy, LUX, Pears, Liril, Hamam, Lever Ayush
2. Oral Care – Pepsodent, Closeup, Lever Ayush
3. Hair Care – Tresemme, Dove, Indulekha, Lever Ayush
4. Skin Care – Glow & Lovely, Pond’s, Vaseline, Lakme, Lever Ayush.
5. Color Cosmetics – Lakme

3. Foods & Refreshment:

HUL’s Foods & Refreshment segment offers a variety of food and beverage products. The company sells various food products such as ketchups, jams, tea, coffee, soups, icecreams, nutrition products and others under this segment. It focuses on improved innovation, increased penetration and its Winning in Many Indias (WiMi) strategy to improve the sales.

Brands under segment :-

1. Foods – Knorr, Kissan, Hellmann’s, Annapurna
2. Beverages – Lipton, Bru, Broke Bond, Red Label, Taj Mahal, Taaza, 3 Roses
3. Nutrition – Horlicks,
4. Ice Cream – Kwality Walls

Footprints:

The company’s brands are available across 80 lakhs stores across India and around 90% of all households in India use 1 or more of the company’s branded products. India is the primary place of business for the company which accounts for 96% of revenues and the rest 4% revenues are earned from sales outside India.

Manufacturing Capabilities:

The company’s 31 manufacturing facilities and various other third-party manufacturers produce goods for the company. Its manufacturing plants are located across India.

Channel Transformation:

The company has developed its own app ‘Shikhar’ which provides the retail outlets with branded products of the company directly without any salesman. It has 3.4 lakh outlets boarded on the application. It has designed a portfolio for e-commerce channels and has seen 2 times growth in sales from e-commerce in a single year.

Recent Mergers and Acquisitions:

In 2015, the company acquired ‘Indulekha’ brand from Mosons Group for a consideration of 330 crores along with deferred consideration of 10% on the domestic turnover of the brands each year starting from FY18.

Further in 2020, the company acquired brand ‘Vwash’ from Glenmark Pharmaceuticals Ltd. The brand was launched in 2013 and has established itself as a market leader in the female intimate hygiene category.

Then in 2020, the company entered into a scheme of amalgamation with a listed company GlaxoSmithKline Consumer Healthcare Ltd (GSK CH) wherein it would be merged with HUL. 

GSK CH owned Horlicks along with other popular brands viz. Boost, Maltova and Viva.

As per the scheme of Amalgamation, the company allotted ~18.5 crore equity shares of HUL to the shareholders of GSK CH for the merger. It also paid an additional 3,045 crores to acquire the Horlicks brand for India from GSK. In aggregate, the company paid ~40,200 crores for the acquisition of GSK CH by way of equity issue and cash.

Financials:

What we like:  

1. Market Leadership:

The company is the market leader in many product categories such as skin cleansing, skin care, hair care, fabric wash, household care, tea, health food drinks and ketchup. It is a market leader in ~90% of its businesses.

2. Extensive Distribution Network:

HUL’s distribution network is one of the largest in India, with a presence in urban and rural areas. It reaches over 7 million outlets across the country. This extensive reach ensures that HUL’s products are readily available to consumers, contributing to its market leadership.

3. Strong Financial Performance:

HUL has a track record of strong financial performance. In the financial year 2022-23, the company reported a consolidated revenue of INR 60,580 crore, a 15.5% growth compared to the previous year. The company’s profit after tax for the same period stood at INR 10,143 crore, reflecting steady profitability.

4. Brand Loyalty and Consumer Trust:

Many of HUL’s brands have built a strong reputation for quality over the years, fostering loyalty among consumers. This brand trust often translates into higher sales and market share. Also the company has a history of consistently rewarding its shareholders with dividends.

5. Volume and price growth support topline performance:

HUL’s revenue rose 6.5% YoY to Rs.14,931cr in 1QFY24, driven by growth across the segments with an underlying volume growth of 3%. On a segmental basis, Home Care segment (HC) revenue grew 10% YoY, due to strong performance in household care and fabric wash segments. Double-digit value and volume growth, mainly in the dishwash business, supported strong performance in household care, while premium portfolio supported double-digit growth in the fabrics business. The Beauty & Personal Care (BPC) segment grew 4.4% YoY, owing to double-digit growth in color cosmetics, skin care and oral care business. In the Foods & Refreshment (F&R) segment, revenue rose 4.7% YoY, supported by strong performance in Health Food Drinks as well as Ketchup and Food Solutions businesses

Factors to consider:

1. The Indian consumer goods sector is highly competitive, with numerous domestic and international players competing for market share. Intense competition can lead to pricing pressures and increased marketing expenses.
2. Fluctuations in the prices of raw materials, such as petroleum-based packaging materials, can affect HUL’s production costs and, consequently, its profitability.
3. The consumer goods industry in India is subject to various regulations, including price controls and advertising standards. Compliance with these regulations can impact product pricing and marketing strategies.

Conclusion:

Hindustan Unilever Limited is a formidable player in India’s consumer goods market. Its diverse product portfolio, strong brand presence, and commitment to innovation make it an attractive choice for investors seeking stability and potential long-term growth. However, investors should consider the competitive landscape, economic conditions, and regulatory factors before making investment decisions.