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ToggleHindustan Unilever shares the FMCG giant company with around 80 years of hands-on experience in the Indian market. Do you know? On average, 9 out of 10 household products used in India are from HUL.
HUL has 44+ brands. It is a subsidiary of the British-Dutch company Unilever, which holds 67.19% of HUL’s shares. The company has posted a net revenue of Rs. 40487 Cr.
Recently, HUL released its Q2 2021 result. They posted Rs. 2009 Cr as Net Profit, which increased by 9% compared to the previous year. Toral revenue increased by 16% over Q2 2020.
Currently, the company has a market share of 95.46% in the FMCG sector. Let’s quickly recap the company’s qualitative, quantitative, and financial analysis. Kindly check our review of Britannia’s share price.
Business Overview – Hindustan Unilever Shares:
Their focus of business is into 4 categories of FMCG basket,
- Food and refreshment
- Home Care.
- Beauty and Personal Care
- Life Essentials
The revenue split between these categories is off.
- 35.43% in Home Care products.
- 44.47% in Beauty and Personal Care products.
- 19.32% in Food and Refreshments.
- 0.78% in Life Essentials.
More diversified in their brands, which are market leaders.
- Lux, Wheel, Lifebuoy, Kwality Walls, Brooke Bond, Fair & Lovely, Surf Excel, Dove.
In addition to which, they are market leaders in various FMCG Categories,
- Laundry Products – Surf Excel, Wheel, Rin, Comfort.
- Soap – Dove, Lux, Lifebuoy, Hamam, Pears, Liril
- Hair Care – Clinic Plus, Indulekha, Toni & Guy, Glow & Handsome, Brylcreem, Sunsilk, TRESemme, Lakme.
- Home Care – Domex, Vim, Sunlight, Love & Care, CIF
- Skin Care – Fair & Lovely, Ponds, Vaseline, AXE, Rexona, Lever Ayush.
Also, they are runner-up in the categories like,
- Tea – Brooke Bond (3 Roses, Red Label), Bru.
- Oral Care – Close Up, Pepsodent.
Key imperatives of the company,
- More than 21000 employees.
- 29 Manufacturing sites.
- 100+ Suppliers and Associates.
- 3000+ Distributors.
- 8+ million stores.
Strategic Imperatives Striving Growth:
- Guiding Framework
- Purpose-led, Future-fit
- 4G growth Model
- Consistent
- Competitive
- Profitable
- Responsible Growth
- Fundamentals of growth
- Purposeful Brands
- Improved penetration.
- Impactful Innovations.
- Design for Channels.
- Fuel for Growth.
Progressively improvement has been seen in the operating environment:
- Economics activities are picking up across the nation
- Rural performance is better due to good Monsoons, higher MSPs, demand relocation, etc.
- Commodity and currency volatility leads Tea and palm oil prices to hike 1.7 and 1.4 times respectively.
Other imperatives and actions that have brought the company sales to 16% growth Y-o-Y are,
- Resilience and agility in operations during the COVID period
- 100% of factories and depots operation
- 8 wage settlements during COVID
- ~90 Flex Formulation.
- 120+ alternative suppliers.
- Sharpening our execution edge
- Stepping up coverage and assortment
- Digitizing general trade
- Accelerating e-commerce.
- Repurposing the Brand – The purpose was communicated through Lifebuoy, Clinic Plus, Hamam, Horlicks, Surf Excel, Dove Shampoo, Comfort, Brooke Bond Red Label, and Domex advertisements.
- Dailing up Consumer-relevant Innovations.
During the COVID-19 time, the Food and refreshment category was stated as the key business driver.
Financial Performance – Hindustan Unilever Shares:
The above image will give us a clear piece of the financial background of Revenue, EBITDA, PAT, and EPS between 2015-2020 and Q1 and Q2 of 2021.
- Higher revenue growth compared to the industry average. HUL’s revenue has grown at a CAGR of 4.03% in the last five years, compared to 3.99% for the industry average.
- EBITDA has grown at a CAGR of 9.08% in the last 5 years.
- PAT has grown at a CAGR of 9.11% in the last 5 years. This is higher than the industry average, which has grown at a CAGR of 9.06%.
- In the last 5 years, HUL has increased its market share from 95.21% to 95.46%.
The growth of all the parameters has been consistent throughout the quarter. A few days ago, we analyzed Britannia Industries Shares, and we found a dip in Q2 ‘2021 compared to Q1 ‘2021.
Revenue and profit have grown at 4.04% and 9.11%, respectively, while the share price has grown at a CAGR of 22.62% in the last five years.
- Share price on 22nd September 2015 – Rs. 786
- Share price on 22nd September 2020 – Rs. 2179
This is known as a speculation book. When you trade or invest without measuring the growth of the business and simply depending on share price growth
Fundamental Analysis – Hindustan Unilever Shares:
- No of Shares – 216.48 Cr Shares
- Market Capital – Rs. 471795.28 Cr
Valuation Ratios:
As our reader could easily co-relate, valuation ratios are the initial step in fundamental analysis.
- Book Value – Rs. 38.01 per Share
- Price to Book value (P/B) – 57.34 times
- Earning Per Share (TTM) – Rs. 30.97 per Share
- Price to Earnings (P/E) – 70.35 (Highly Overvalued)
- Industry Average P/E – 42.15
- Dividend Yield – 1.14%
- Debt to Equity ratio – 0.0
- Current ratio – 1.32 (Minimum Threshold should be 2)
- Interest Coverage Ratio – 78.69 (Dropping out Y-o-Y)
- Return on Equity (ROE) – 82%
- Net Profit Margin – 16.7% (Growing Y-o-Y)
- Free Cash Flow – Rs. 6813 (Growing at a good phase in the last 5 years)
- Enterprise Value/EBITDA – 47.7 times (Highly Overvalued)
Excess Liquid Cash Per Share:
Total Liquid Asset:
- Fixed Asset:
- Investments: Rs. 2 Cr
- Other Financial Assets: Rs. 620 Cr
- Current Asset:
- Investments: Rs. 1619 Cr
- Cash and Cash Equivalent: Rs. 2014 Cr
- Bank Balance: Rs. 1960 Cr
- Other Financial Assets: Rs. 1511 Cr
- Total Liquid Asset: Rs. 7726 Cr
- Total Liabilities: Rs. 20806
Excess Liquid cash: (Rs. 13080 Cr) [Negative]
Excess Liquid Cash per Share: (Rs. 60.42) per Share
The excess liquid cash per share is negative even when the company is debt-free and adding free cash flow. The company needs to increase its liquid assets, such as investments under financial assets, cash and cash equivalents, and Bank balance.
Shareholders Pattern:
- Promoter – 61.9%
- FII – 14.54%
- Financial Institutions – 0.04%
- Insurance Company – 3.75%
- Mutual Fund – 3.79%
- Retail Investors – 11.46%
- Other DII’s – 4.36%
Intrinsic Value Calculation:
Once we have found the valuation ratios and Excess Cash per share, the final step as intelligent investors is to find the intrinsic value. The 5-year EPS growth is 9.1% (CAGR). EPS (TTM)—Rs. 30.97 per share.
Let us take the margin of safety as 10%. Since the company is more than centuries old and has a sustainable business, we will use 10% in MOS.
So, the Intrinsic Value will be less than Rs. 437 per share. The current market price of a share is traded at 3.9 times higher than the intrinsic value.
Insights to Investors:
- A strong company in business growth and market share in the FMCG portfolio.
- Even in the FMCG Sector, there are more diversified categories. During this COVID, Beauty care sales were heavily impacted but perfectly backed by home care, personal care, and nutrient products.
- The concern is that revenue growth has been under 5% in the last 5 years. The company is working well on profit-making.
- A more innovative pipeline of products is missing from their end. Any new launches in the future will lead to double-digit revenue growth.
- When profit and revenue growth in the last five years has been in the single digits, the share price has grown by 22.62%.
- This is a very big concern. You should think before investing in a company with a P/E of 70 times the earnings (TTM).
- As a single line, “One of the best companies with 4 times higher share price“