Hindustan Unilever (BOM:500696)

QUOTE AND NEWS
The Economic Times  Nov 19  Comment 
"Hindustan Unilever Ltd is a 'Buy' call with a target of Rs 787 and a stop loss of Rs 755."
Reuters  Nov 19  Comment 
Reuters Market Eye - ITC Ltd gains 1.4 pct, Hindustan Unilever Ltd is up 1.8 pct and Britannia Industries advances 2.6 pct.
The Hindu Business Line  Nov 19  Comment 
Dr Reddy's Labs made rapid strides in the afternoon session on the BSE on Wednesday. At the close it was up 2.45 per cent at ₹3,514.85 as against its overnight close at ₹3,430.90. Hindus...
The Economic Times  Nov 10  Comment 
Dr.Reddy's Laboratories also gained 0.8 per cent while Hindustan Unilever was up 0.6 per cent.
The Times of India  Nov 6  Comment 
At a time when consumer spending is down and the Swachh Bharat campaign is on the upswing, Hindustan Unilever (HUL) is planning an experiment with urban public toilets to take its Sustainable Living Plan to the next level.
The Hindu Business Line  Nov 4  Comment 
Online marketplace Snapdeal’s goof up has helped Hindustan Unilever (HUL) gain a loyal customer for lifetime and many new ones. Laxminarayan Krishnamurthy, a Mumbai-based resident and a bank emplo...
The Economic Times  Oct 28  Comment 
"Hindustan Unilever is a 'SELL' call with a target of Rs 685 and a stop loss of Rs 731."
Wall Street Journal  Oct 27  Comment 
Hindustan Unilever Ltd. shares tumbled Monday after India’s largest consumer goods maker said high inflation and slow economic expansion continue to cool consumption in Asia’s third-largest economy.
The Economic Times  Oct 22  Comment 
"In the thick of the Arab Spring, one underwent quite a few exciting challenges. In Egypt, the economy completely collapsed – but we grew 20%."




 

Hindustan Unilever Ltd. (Bombay Stock Exchange: 500696) makes fast-moving consumer goods (FMCG) such as detergents, toiletries, and food staples. The company has a distribution channel of 6.3 million outlets and 30 major Indian brands. HUL recorded 20.02 year over year (yoy) growth in revenue at Rs 16660.38 crores during the year ended Dec'08. Its Soaps and Detergents business was its largest contributor to revenues with 46% of total revenues where as Personal Care products contributed the most (46%) towards EBIT (Earnings before Income Tax).

Increase in per capita income in urban, as well as rural areas, of India has a positive effect on demand of consumer goods along with a shift in demand towards high end lifestyle products. Long a provider of low cost consumer goods, HUL has recently launched products in its high end segments.

Company Overview

HUL, the largest FMCG Company in India by revenues was formed by merging three subsidiaries of Unilever in 1956. At present, Unilever Plc holds a 51.6% stake in the company. HUL’s portfolio of products covers a wide spectrum including soaps, detergents, skin creams, shampoos, toothpastes, tea, coffee and branded flour.[1] HUL's brands, spread across 20 distinct consumer categories. It owns 35 major Indian brands. HUL has consistently had the most number of brands in the Top 10 list for the most trusted brands in India from 2003 to 2009. Surf Excel, Pepsodent and Ponds in Home and Personal Care segment and Lipton, Kissan and Brooke Bond in Foods and Beverages Segment are some of its top brands. It launched Ponds Age Miracle,Vaseline range of products in skin care category and Axe-Dark Temptation in personal care segment as part of their expansion into higher end products.

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Trends and Forces

Increasing raw material prices drives HUL to raise its prices

Raw materials constitute a big chunk (around 60%) of input cost for FMCG sector companies. For HUL- Palm Oil and Chemicals contribute 59% of total raw material cost. Due to inflated input cost in Soap and Detergents division EBITDA(earnings before income tax and depriciation) margins have suffered.

The first steep increase in the prices of key raw materials such as palm oil, LAB - Linear Alkyl Benzene, caustic soda, soda ash, raw tea, coffee and crude oil derivatives has led the company to implement price hikes in competitive segments like toothpaste, soaps, detergents and shampoo.

But recently softening Inventories - Raw Materials prices in the last 2-3 months have provided respite to FMCG sector companies. Raw material and packaging materials have fallen sharply from their highs recorded in Sep'08. The benefit of fall in raw material prices will be accured later when high cost inventory will be replaced by a cheaper inventory.

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Per Capita consumption of personal care products in India is one of the lowest among developing economies of the world.

India has one of the lowest levels in per capita consumption of consumer goods among developing economies of the world. It has per capita consumption levels of 1.4,0.3,0.2 and 0.3 US$ in detergents, shampoo, ice-creams and skin care segments respectively which are lower than that of China, Brazil and Indonesia. Consumption levels in the U.S., a developed country, are 16.6, 6.7, 49.4 and 36.6 in categories mentioned before. Low consumption coupled with increase in per capita income poses as a growth opportunity for consumer products companies.

Highly Competitive FMCG Sector limits profit margins of HUL.

In a volume driven and competitively intense environment with competition also from local players FMCG players are aggressively promoting their brands to gain product awareness, customer base, and their shares of the customers’ wallets. To facilitate launch new products and relaunch of existing products companies are increasing their research and development expenditure. These factors eat up the profitability margins of the companies. Pricing scenario in current time is in favor of companies but in past due to pricing war with P&G in Soaps and Detergents.

Competition

The Indian FMCG sector is the fourth largest sector in the economy with a total market size of $18 billion. As the name suggests FMCG products are frequently used and bought by the customers so there are large number of players supplying same products. HUL is the only company in Indian consumer goods market that has products in more segments than any other company of the same sector.HUL is the largest FMCG company in terms of revenues.

Procter and Gamble (P&G) India : HUL faces a fierce competition from P&G India in its key segments i.e. Detergents and Personal Care. It operates in India thorugh three subsidiaries: Procter and Gamble Home Products (100% subsidiary of the company), Procter and Gamble Hygiene and Health care Ltd. (PGHH) and Gillette India Ltd. It has in its portfolio some of P&G's Billion dollar brands such as Vicks & Whisper in health care and Ariel and Tide in detergents segments.[2]

Godrej Consumer Products Ltd. (GCPL): It has two segments: Soap (64% of revenues) and Personal Care.GCPL is second largest soap player in India after HUL with a market share of 9.2%. Personal Care includes hair care products, shaving cream and other toiletries.

Dabur India Limited - Dabur India Limited is an India-based fast moving consumer goods company which deals in healthcare, personal care and food products.

Colgate-Palmolive (India) Limited : It manufactures a range of products marketed under the Colgate which includes oral care products and Palmolive (skin care and hair care products) brand names.

Marico Limited:Marico has a portfolio on high margin "Beauty and Wellness" platform which includes hair oils, soaps, edible oils, skin care etc.

References

  1. Company Website
  2. P&G India website
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