Arpit Maheshwari

IIM Kozhikode

Hindustan Unilever Limited

FMCG Sector is one of the most
important sectors for each and every
Economy. It plays a vital role being a
necessity and inelas-tic product which
touches every life in one or the other
aspect. India's FMCG sector is the fourth
largest sector in the economy. Its
principal constituents are Household
Care, Personal Care and Food &
Beverages. The total FMCG market is in
excess of 85,000 Cr. It is currently growing
at double digit growth rate.

The industry is characterized by a well-established distribution network, low penetration levels, low
operating cost, lower per capita consumption and intense competition between the organized and
unorganized segments. In comparison to the other manufacturing sectors, FMCG is relatively less capital
intensive but demands immense skills and expenditure on branding and distribution. Value creation is
done through product differentiation, package innovation, and differential pricing and highlighting the
functional aspects of foods.

Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods (FMCG) Company,
touching the lives of two out of three Indians with over 20 distinct categories in Home & Personal Care
Products and Foods & Beverages. HUL is also one of the country's largest exporters; it has been
recognized as a Golden Super Star Trading House by the Government of India. The mission that inspires
HUL's over 15,000 employees, including over 1,300 managers, is to "add vitality to life."

HUL meets every day needs for nutrition, hygiene, and personal care with brands that help people feel
good, look good and get more out of
life. HUL's brands - like Lifebuoy, Lux,
Surf Excel, Rin, Wheel, Fair & Lovely,
Pond's, Sunsilk, Clinic, Pepsodent,
Close-up, Lakme, Brooke Bond,
Kissan, Knorr-Annapurna, Kwality
Wall's are household names across
the country and span many
categories - soaps, detergents,
personal products, tea, coffee,
branded staples, ice cream and
culinary products. They are
manufactured over 40 factories across India.
 Arpit Maheshwari
IIM Kozhikode

Market Share and Position

 Hindustan Unilever has 45% market share in the toilet soaps category, 35% in detergents and
50% in skin creams. HUL has a strong lead over the competition with GCPL (soaps 10.9%), P&G
(detergents 13.5%) and
Emami (skin care 5%).
 HUL lost market share in
these segments in the past 18
months (980bp in toilet soap,
600bp in skin creams and
280bp in detergents).
 GCPL (toilet soap), Ghari
(detergents) and Emami (skin
cream) have increased market
share.

Trends and opportunities

 Although soap and detergent have product penetration of 85-90%, per capita spends in
comparison to peers like China and Indonesia are 30-35% lower. Soap volumes are expected to
grow at 4% CAGR while detergents volume should expand at 8% CAGR.
 The mass market segment in soap and detergent is 70-75% of volumes with a huge opportunity
to upgrade consumers to mid-priced and premium products.
 Skin creams have 22% penetration and rural penetration is 17%. Per capita spend is only 10% of
China's and 35% of Indonesia's.
 Rising awareness of skin care and a need to look good will drive demand for skin creams by 20%
CAGR.

Company strategy to sustain its edge

 HUL's portfolio in soap, detergent and skin creams straddles price points. This will enable the
company to retain consumers as they upgrade.
 HUL has limited competition in the premium segment (Dove, Pears and Surf Excel). Competition
from home-grown brands is weak in the premium segment.
 HUL has cut prices and revamped products in its mass-market brand range including Wheel, Rin,
Lux and Lifebuoy to improve the price value equation.
 AHUL has increased focus on Dove, Surf Excel and Ponds to cater to the premium segment.
Distribution in premium outlets has been increased.
 Arpit Maheshwari
IIM Kozhikode

Surf Excel, Dove, Clinic All Clear

Closeup, Lipton, Red Lable
Affluent

Rin, Lux, Sunsilk, Pepsodent

Fair and Lovely, Bru
Aspiring

lifebouy, Vaseline, Breeze

Small packings of Closeup, Pepsodent etc
Strivign

Product portfolio spanning across income ladder

Per capita spends, potential for penetration to drive steady volume growth

Soaps and detergents have product penetration of 85-90%, which is among the highest in FMCG
categories. But the definition of penetration includes infrequent users, which is reflected in lower per
capita spends. India’s per capita spends are 30-35% lower than those of its peers, like China and
Indonesia. However, the spending are expected to converge in the coming few years. Soap volumes are
expected to grow 4% CAGR and detergent volumes are expected to expand at 8% CAGR over coming 3-5
years. In the soaps and detergents categories, the mass market segment comprises 70-75% of volume,
indicating a big opportunity to upgrade consumers to mid-priced and premium products.

Comparison of per-capita LAUNDRY SKIN CARE

spends across categories
(US $)XCOUNTRY
China 2.2 3.2
Indonesia 1.9 0.8
India 1.4 0.3
Malaysia 6.2 7.4
Thailand 3.9 7.7
 Arpit Maheshwari
IIM Kozhikode

Product portfolio

HUL has a monopoly in the toilet soaps, skin creams and detergents markets. The company’s strength
lies in its portfolio approach, with its brands straddling segments and price points. None of its
competitors has such a comprehensive product portfolio. This gives HUL the unique advantage to
upgrade consumers as their incomes increase.

Losing market share

HUL has been losing market share in the toilet soaps, detergents and skin care segments in the recent
past. Market share declined by 980bp in the toilet soaps category, 280bp in the detergents market and
600bp in the skin creams segment in the past 18 months. The loss has been in the mass end of the
market because national and regional players have been aggressively expanding their distribution and
product ranges. HUL increased prices during the commodities boom and easier availability of
competitive products dented HUL’s market share. HUL initiated corrective action such as cutting prices
across categories, increasing adspends and revamping distribution, from which it will benefit after a lag.
However, since competitors’ direct distribution expansion is a key reason for HUL’s loss of market share,
recovering it would be a function of its own initiatives as well as competitive intensity in the market.
HUL might not be able to regain market share without denting margins.

Valuation

Valuation of the firm would be done using the FCFF method. The template for the calculation is attached
with the document and the assumptions for the models would be done after comparing them with the
other companies in the FMCG sector and other macroeconomic factors.