HINDUSTAN UNILEVER SHARES REVIEW
Hindustan Unilever shares, the FMCG giant company which has around 80 years of hands-on over the Indian market. Do you know? On average 9 out of 10 household products used in India are from HUL.
HUL has around 44+
brands. It is a subsidiary of a British-Dutch company Unilever, which holds 67.19% of shares in HUL. The company has posted a net revenue of Rs. 40487 Cr.
Recently, HUL has released its Q2’2021 result. They have posted Rs. 2009 Cr as Net Profit with a growth of 9% compared to the previous year. Toral revenue has grown by 16% over Q2’2020.
Currently, the company has a market share of 95.46% in the FMCG sector. Let have a quick recap of 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 of.
- 35.43% in Home Care products.
- 44.47% in Beauty and Personal Care products.
- 19.32% in Food and Refreshment.
- 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
- Responsible Growth
- Fundamentals of growth
- Purposeful Brands
- Improved penetration.
- Impactful Innovations.
- Design for Channels.
- Fuel for Growth.
Progressively improvement has seen in the operating environment:
- Economics activities picking up across the nation
- Rural performance is better due to – Good Monsoon, Higher MSPs, Demand Relocation, etc.
- Commodity and currency volatility leads to Tea and palm oil price to hike 1.7 and 1.4 times respectively.
Other imperatives and actions which have brought the company sale 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 – Purpose made through the advertisement for lifebuoy, Clinic Plus, Hamam, Horlicks, Surf Excel, Dove Shampoo, Comfort, Brooke Bond Red Label, and Domex.
- Dailing up Consumer relevant Innovations.
During the COVID time, Food and refreshment category stated as the key business driver.
FINANCIAL PERFORMANCE – HINDUSTAN UNILEVER SHARES:
The above image will give our clear piece of the financial background of Revenue, EBITDA, PAT, EPS between 2015-2020 and Q1, 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 5 years vs 3.99% of 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 the market share from 95.21% to 95.46%.
The growth of all the parameters has seen a consistent overall quarter. A few days ago, we did an analysis of Britannia Industries Shares, where we have found there was a dip in Q2’2021 compared to Q1’2021
When the revenue and profit have grown at a rate of 4.04% and 9.11% respectively. The share price has grown at a CAGR of 22.62% in the last 5 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
As our reader could easily co-relate, in fundamental analysis valuation ratios are the initial step.
- 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
Even when the company is debt-free and adding free cash flow, the excess liquid cash per share is negative. The company needs to increase its liquid assets like investments under financial assets, cash and cash equivalent, Bank balance.
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 an intelligent investor is to find the intrinsic value.
The 5 years 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 and have a sustainable business, we will go with 10% in MOS.
So, the Intrinsic Value will be less than Rs. 437 per share.
The current market price of a share is traded 3.9 times higher than the intrinsic value
INSIGHTS TO INVESTORS:
- A strong company in terms of business growth and market share in the FMCG portfolio.
- Even in FMCG Sector, they have more diversified categories. In this COVID, Beauty care sales were heavily impacted but perfectly backed by home care, personal care, and nutrients products.
- The concern here is in the last 5 years, the revenue growth is under 5%. The company is working well on profit-making.
- A more innovative pipeline of products is missing from their end. If any new launches in the future will lead to double digit revenue growth.
- When both profit and revenue growth in the last 5 years is in single digit, the share price has grown by 22.62%.
- This is a very big concern. You should think before investing in a company with P/E at 70 times the earnings (TTM).
- As a single line, “One of the best company with 4 times higher share price“