Hindustan Unilever Shares Complete Fundamental Analysis and Future Outlook
Hindustan Unilever operates in three main segments namely Home care, beauty and personal care and Food & Refreshments. It has 3 categories of brands based on the revenue it generates. The 2000 crore+ brands include Surf Excel, Brooke Bond, lifebuoy etc. The 1000+ Crore brands include Pond’s, Dove, Lux etc and the 500 crores + brands include Pears, Kissan, Vaseline etc.
- Its has a solid presence in the Indian markets and is well-positioned in the rural areas to take advantage of rising Income levels.
- HUL has around 40 Brands across 12 distinct categories and an annual revenue of INR 390 Billion. It has a presence of 80 years in the Indian market and their brands are well-positioned in the consumer minds.
- HUL has a robust distribution network of more than 50+ large distributors covering the entire Indian subcontinent. It is estimated that 6 out of every 10 household products in India are manufactured by HUL. Thus it has a strong economic moat which makes HUL shares an attractive investment for the retail investors.
- The FMCG sector is expected to grow at a CAGR of 12% in India to reach USD 103.7 billion by 2020. The sector is further supported by the balanced inflation rate and increasing consumption.
- India has low penetration, low consumption and low premiumization of household products but this is changing with the increasing per capita income in India.
- Distribution in the rural market, growing awareness and changing lifestyle are the key growth drivers for HUL. It is well-positioned to take advantage of the increasing income in the lower and middle-class Indian society.
I have evaluated the company on 10 fundamental categories and each has been given a rating out of 5 stars. From this, I have arrived at a combined stock rating for the company.
This is the summary of the analysis. You can read the detailed analysis with the excel models on my blog (Check the source link)
Source: Hindustan Unilever Shares Fundamental Analysis and Future Outlook
Some insights for the coming years from management discussion & analysis (MD&A) and con calls are as follows.
- Increase in sales of Soaps especially Lifebuoy is expected in double digits due to Coronavirus spread in the country. Also, other categories may see an increase due to hoarding and panic buying during the lockdown.
- The company is facing competition from Patanjali and Dabur brands, especially in rural India. HUL shares will take a hit because of this.
- Management expects 6–7% price increase in soaps over the next few months. This effectively means a reversal of the 5–6% decrease it had taken in September-October when commodity prices were lower.
- Growth is slowing down in general. Urban growth has flattened but rural growth has slowed down even more by approximately 50%.
- Delayed onset of winter affected skincare sales, while personal wash pricing actions impacted Beauty and Personal Care (BPC) sales for HUL
The growth is flattening in an urban area so the company is focusing on premiumization. The success of such a strategy depends mostly on advertising and marketing which requires heavy investments. Still, it remains one of the best investment in the Indian FMCG sector.
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