Hindustan Unilever Shares Review


Hindustan 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:

  1. Guiding Framework
    1. Purpose-led, Future-fit
  2. 4G growth Model
    1. Consistent
    2. Competitive
    3. Profitable
    4. Responsible Growth
  3. Fundamentals of growth
    1. Purposeful Brands
    2. Improved penetration.
    3. Impactful Innovations.
    4. Design for Channels.
    5. 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,

  1. 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.
  2. Sharpening our execution edge
    • Stepping up coverage and assortment
    • Digitizing general trade
    • Accelerating e-commerce.
  3. 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.
  4. 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:

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