Hindustan Unilever Ltd.: In recent months, FMCG stocks have seen a significant rise. The FMCG industry is essential to the retail sector, producing a wide variety of everyday products. These include food, toiletries, drinks, over-the-counter medicines, plastic goods, personal care items, and affordable electronics like mobile phones and headphones.
Key companies in the FMCG sector focus on keeping customers happy and loyal by quickly addressing complaints and managing customer relationships. One company that has done exceptionally well in the market is Hindustan Unilever Limited. Let us know about the company. In this article, we will explore the company’s competitive advantages, financial health, and future outlook.
Industry Overview
FMCG is India’s 4th largest sector and has been expanding at a healthy rate over the years because of rising disposable income, a rising youth population, and rising brand awareness among consumers.
Total revenue for FMCG is expected to grow at a CAGR of 27.9% through 2021–2027, reaching nearly US $615.87 billion. The Union Budget approved a new PLI scheme for the food processing sector with a budget outlay of Rs. 109 billion. The scheme will be disbursed for 6 years, from 2026 to 2027.
India is exhibiting a growth rate CAGR of 9.5% during 2023–2028 in the food processing market. Online grocery market size has been projected to reach US $76,761 million at a CAGR of 32.7% by 2032.
Company Overview Of HUL
Hindustan Unilever Limited (HUL) is the top company in India’s consumer products market. HUL, founded in 1931 as Hindustan Vanaspati Manufacturing Company, has its headquarters in Mumbai. It is a subsidiary of Unilever, a global leader in food, home care, personal care, and refreshment products, selling in over 190 countries.
HUL employs more than 19,427 people and operates over 25 factories, producing more than 2000 stock-keeping units. These products are distributed through more than 30 warehouses across India. Over 700 million Indian consumers utilize its products, which are available in over 20 consumer classes.
HUL products are distributed in 16 FMCG categories and 50+ brands, with 3,500 distributors across the country and 9 million retail outlets. Foods, drinks, water purifiers, cleaning supplies, and other fast-moving consumer goods (FMCG) are among its items.
HUL’s 19 brands account for more than 1000 crores in revenue; three are approaching 1000 crores, and eight are the most valuable in India. In this regard, the contributions of Brooke Bond and Surf Excel to the company’s turnover have exceeded 5000 crore.
Business Segment Overview
Home Care: Home Care is a leading fabric and household care product. The home care revenue increased by 3% to reach ₹21,900 crore in FY24 compared to ₹21,230 crore in FY23. With a segment margin of 18%. Top Brands Under Home Care Surf Excel, Rin, Wheel, Comfort and Vim.
Beauty and Personal Care: Beauty care is a rapidly evolving beauty landscape, aiming to progress beyond consumer needs. The beauty and personal care revenue increased by 1.5% to reach ₹22,165 crore in FY24 compared to ₹21,831 crore in FY23. With a segment margin of 26%. Top Brands Under Beauty and Personal Care: Lakme, Sunsilk, Lifebuoy, Vaseline, Dove
Foods and Refreshments: Making sustainable choices by addressing consumer needs to become an all-class food force. The food and refreshment revenue increased by 2.8% to reach ₹15,292 crore in FY24 compared to ₹ 14,876 crore crore. With a segment margin of 19%. Top Brands Under Foods and Refreshment Care include Boost, Kissan, Red label, Bru and Hellmann’s
Recent Sale of the Pureit Business:
Unilever has agreed to sell its Pureit business to A.O. Smith for 601 crores, effective July 15, 2024. This sale aligns with Unilever‘s strategy to shift its portfolio towards higher-growth areas as part of its growth action plan.
HUL’s Financial Performance
In the financial year 2024, Hindustan Unilever Limited (HUL) saw a slight increase in revenue by 2%, reaching ₹61,896 crores compared to ₹60,580 crores in FY23. Over the past four years, from FY20 to FY24, the company achieved a solid revenue CAGR of 11.68%. In FY24, HUL’s profit margins rose by 1.4%, amounting to ₹10,282 crores compared to ₹10,143 crores in FY23.
The decline in revenue and net profit was due to low rural demand, inflation, and adverse climate conditions. Despite these challenges, HUL maintained strong financial metrics in FY24, with an EPS of ₹43.74 per share, an ROCE of 21.72%, and an operating margin of 24%.
Even their subsidiaries like Unilever India Exports Limited, Lakme Lever Private Limited, Hindustan Unilever Foundation, Unilever Nepal Limited, Unilever India Limited, and Zywie Ventures Private Limited showed a strong performance with a net profit of Rs 10,282 crore in FY ’24.
From the above chart, we can clearly say that HUL underperformed when compared to the Nifty 50. The 1-year return percentage is 0.09% for HUL compared to Nifty returns of 25.87%. The 5-year return percentage of HUL was half of the Nifty returns.
Crude Oil Prices
Since the last month, the Brent crude oil price has declined by 5%, to 78.97 per barrel on July 23, 2024. Most of the revenue comes from beauty & personal care products for HUL, accounting for over 36% of ₹ 22,448 crores in FY24. Beauty products were produced by petroleum. Due to the decrease in the price of crude oil, the cost of spending on petroleum products would be low, which led to low costs and higher profits from selling the product at predetermined prices.
HUL’s Future Expectations
EBITDA Focus: Targeting a 23-24% EBITDA margin band, with a focus on maintaining current levels in the short term and modest margin improvement in the medium to long term.
Upcoming Plans: Unilever is planning to separate the ice cream business by the second half of 2025, with further decisions and strategies to be communicated in the future.
Actions: Underway to address performance in the skin cleansing segment.
Revival of Rural Demand: Hindustan Unilever expects a strong monsoon season to boost demand this year. They are also expanding into premium products in modern trade and e-commerce, relying on market condition improvements.
Improvement of Margins: Hindustan Unilever plans to maintain operating margins in the medium-to-long term by increasing investments in future growth categories. The company has identified six growth areas: facial cleansers, serums, weather-proof body care, massage, sun care, and light moisturizers.
Key Metrics Of HUL
Price Target From Experts And Brokers
Motilal Oswal: The Broker House opted for a buy call with a ₹ 3,250 target. HUL’s unwavering importance to innovation and steady recovery in rural demand highlights its dedication to upholding and growing its market leadership.
Conclusion
As we near the end of the article, we look in brief: Hindustan Unilever Ltd. has shown robust performance in the past years, but the company didn’t achieve the estimation in FY24 due to low rural demand and climate conditions. But for FY25, the company is expecting a good monsoon year and a slow recovery from rural volumes.
The government’s capex plans for job growth and the rural economy will boost demand as well, relieving pressure on retailers and FMCG firms that are seeing a decline in sales. With more money to spend, we anticipate that consumers will spend more. All things considered, the focus on building infrastructure and creating jobs is probably going to greatly increase demand for FMCG goods.
With strong fundamentals and key metrics in ROE, EPS, and operating margins YoY, what do you think about the future of Hindustan Unilever and its industry? Let us know your views in the comments section below
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