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Hindustan Unilever Limited
Hindustan Unilever Limited; A FMCG Giant
About The Company
Hindustan Unilever is in the FMCG business comprising primarily of Home Care, Beauty & Personal Care and Foods & Refreshment segments. The Company has manufacturing facilities across the country and sells primarily in India.
Journey So Far
A Decade of Transformation
Strength of HUL
Product Portfolio
Leader in most of the categories
#1 in >85% of our business
HUL's Product Mix
From FY12 to Now
FMCG Industry Cliemate
Favourable demographic
>1 Bn Working class population 10 Mn will get added every year
Urganisation
Cities with 1 Mn population to nearly double by 2030
Rising affluance
Fundamental of FMCG remains strong
HUL's Business Model
Product portfolio:
F&R; A Strong Business
Financial Performance - HUL
Profit and Loss
Balance Sheet
Analyst Call
The company has consistently concentrated on expanding within its core portfolio over the last ten years and now enjoys brand leadership over 85% of the market and 16 brands with a Rs 10 bn turnover. All nations and businesses have the highest relative market share in some categories. Future efforts will continue to be directed toward expanding these core brands through continuous product innovation, premiumisation (the shift from mass to premium), exploitation of the wildly successful segment-focused region-focused distribution strategy (Winning in Many Indias), and effective communication.
With a total reach of 9 million retail outlets and a direct reach of +2.5 million outlets, HUL has a robust distribution network. Given the extensive network, the company has been able to manage its operations effectively thanks to a focus on digitising the entire value chain. Their hugely popular B2B Shikhar software, with 1 million stores already using it, has greatly streamlined the value chain between wholesalers, salespeople, and retailers. The general trade will remain the primary channel of distribution in the future, but the emphasis is now shifting from expansion to enhancing the value extraction from the already-existing retail touchpoints. E-commerce and modern trade are two of the company's ongoing efforts to build future distribution channels.
Thoughts on Margin: Unprecedented inflation seen in the last quarter has sequentially abated, with several commodity prices showing a sequential decline; volatility, however, persists. HUL has also been harmed by the INR depreciation because the majority of its products are either imported or denominated in dollars. The correct price-value equation has continued to be the company's major priority. Due to this, they have concentrated on prudent pricing and cost reductions to lessen the effect on operating level in the short term. HUL's operating margins have increased by 1,000 bps over the last ten years, reaching respectable 25% levels.
Management Outlook:
India's urbanisation rate is still in the low 30s, and as it increases along with the nuclearization of families, trends in spending are also anticipated to rise. A 15% shift toward the wealthy and elite between FY17 and FY22 has greatly increased consumption and is a major factor in premiumization. Given the high volatility that the country is currently experiencing due to external sources, inflation will define demand trends in the near future. The local FMCG business has maintained its headline growth despite high inflation, demonstrating India's adaptability. HUL is still optimistic that volume will increase as commodity inflation slows.
Rationale:
market position across categories in the FMCG industry: HUL is the largest FMCG company in India with market leadership across product segments. The company has 14 brands with over Rs 1,000 crore in annual sales. In terms of market share, its brands hold the top two spots in most categories it has presence in. The product portfolio includes home care (31% revenue contribution in fiscal 2021), beauty and personal care products (40%) and foods and refreshments (29%). The brands of HUL have high visibility and have sustained their leadership over decades, backed by an extensive distribution network and strong advertising and marketing support. HUL has been leveraging its distribution strengths to adapt its channel strategy for its products and market segments.
The synergies from GlaxoSmithKline Consumer Healthcare Ltd (GSK CH) merger (assets of the Horlicks brand and intellectual property rights of brands such as Boost, Maltova and Viva) will enhance the market position of HUL in the foods and refreshment segment and will increase revenue diversity in the medium term. The company plans to increase the penetration of Boost and Horlicks in rural regions, for which it has launched smaller stock-keeping units.
Strong innovation and premiumisation strategy of HUL along with benefit of integration of nutrition business will drive healthy growth and sustenance of market position in the medium term.
Robust financial risk profile: On a consolidated basis, financial risk profile is supported by strong operating cash accrual of Rs 261 crore in fiscal 2021 and nil gearing as on March 31, 2021. Net cash accrual was lower than the previous fiscal due to higher dividend payout of Rs. 8812 crore in fiscal 2021 as compared to Rs 6266 crore in fiscal 2020. Liquidity is ample with cash and bank balance and investments of Rs 7,178 crore as on March 31, 2021. The company has considerable financial flexibility because of nil debt and largely unutilised bank lines as well as healthy market capital of Rs 5.6 lakh crore as on March 31, 2021. The dividend payout policy is aggressive. In fiscal 2021, the company paid dividend of 110% of its profit after tax (PAT; 93% in fiscal 2020). However, the company has funded capital expenditure (capex) and debt obligation through internal accrual.
Healthy operating efficiency: HUL has high operating efficiency because of its strong distribution network, geographically diversified production facilities and strong linkages with the parent, Unilever Plc (Unilever; rated ‘A+/Stable/A-1' by S&P Global Ratings). Owing to a healthy mix of owned factories and outsourced production facilities across the country, HUL saves significantly on freight cost. The supply chain has been strengthened by cost saving and inventory management using artificial intelligence and other digital initiatives. The company has handheld-based selling systems across distributors.
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I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Stocx Research Club). I have no business relationship with any company whose stock is mentioned in this article.
Source of the content - Company website, Company's presentation, Crisil rating report and Analyst conference call. Disc - Given information in the article is for knowledge purpose only as this is not an recommendation.
I am not a SEBI Registered individual/entity and the above research article is only for educational purpose and is never intended as trading/investment advice.
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