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Financial Analysis: A Report On The
Financial Analysis: A Report On The
FINANCIAL
ANALYSIS OF HINDUSTAN
UNILEVER LIMITED (HUL)
By
Navitha Pereira
CONTENTS
1. Introduction 1
1.1. HUL History 1
1.2. Brands & Products 4
2. Company Analysis 6
2.1. Comparative Balance Sheets 6
2.2. Common Size Balance Sheets 10
2.3. Ratio Analysis 12
2.4. Trend Analysis 13
2.5. BCG Matrix 19
2.6. Effect of Demonetization and GST 20
2.6.1. Demonetization 20
2.6.2. GST 22
3. Industry Analysis 26
3.1. India's FMCG Industry at a glance 26
3.2. Industry Ratio 26
3.3. Revision of Tax Rates after GST 27
3.4. Porter’s 9-Forces Industry Analysis 28
3.5. Market Breakup 30
3.6. Growth Rates: Past and Future 32
3.7. CAGR 33
4. Conclusion 34
References 35
Annexure A – Balance Sheets 36
Annexure B – Key Indicators 37
Annexure C – Industry Ratios 38
LIST OF TABLES & FIGURES
Tab. 2.1: Comparative Balance Sheet of HUL as on 31st March 2013 & 2014 6
Tab. 2.2: Comparative Balance Sheet of HUL as on 31st March 2014 & 2015 7
Tab. 2.3: Comparative Balance Sheet of HUL as on 31st March 2015 & 2016 8
Tab. 2.4: Comparative Balance Sheet of HUL as on 31st March 2016 & 2017 9
Tab. 2.5: Common Size Balance Sheet of HUL as on 31st March 2013 - 2017 10
Tab. 2.6: Ratio Analysis of HUL as on 31st March 2013 - 2017 12
Tab. 2.7: BCG Matrix of HUL 19
Tab. 2.8: Segmental Performance after Demonetization 20
Tab. 2.9: Differential impact on segments 22
Tab. 2.10: Broad based volume led growth across segments 25
Tab. 3.1: Revision of Tax Rates after GST 27
Fig. 2.1: Total Revenue for the years ending 2013 – 2017 13
Fig. 2.2: Gross Sales for the years ending 2013 - 2017 13
Fig. 2.3: Profit before Interest & Tax (PBIT) for the years ending 2013 - 2017 14
Fig. 2.4: Profit for the years ending 2013 - 2017 14
Fig. 2.5: Income Statement values for the years ending 2013 - 2017 15
Fig. 2.6: Reserves & Surplus as on 31st March 2013 – 2017 16
Fig. 2.7: Fixed Assets as on 31st March 2013 – 2017 16
Fig. 2.8: Share Capital as on 31st March 2013 - 2017 17
Fig. 2.9: Share Indicators as on 31st March 2013 – 2017 17
Fig. 2.10: Balance Sheet values as on 31st March 2013 - 2017 18
Fig. 2.11: Impact of Demonetization on HUL 21
Fig. 2.12: Accounting impact of GST from September Quarter 23
Fig. 2.13: Accounting impact on Growth in September Quarter 23
Fig. 2.14: Accounting impact of GST from October onwards 24
Fig. 2.15: Accounting impact of GST on Growth in December Quarter 24
Fig. 3.1: Urban/Rural Industry Breakup (2016) 30
Fig. 3.2: Market Breakup by Revenue FY-16 31
Fig. 3.3: Rural FMCG market (USD Billion) 31
Fig. 3.4: Trends in FMCG revenues over the years 33
1. Introduction
Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods company
with a heritage of over 80 years in India. On any given day, nine out of ten Indian households
use their products.
HUL works to create a better future every day and helps people feel good, look good and get
more out of life with brands and services that are good for them and good for others.
With over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos,
skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and
water purifiers, the Company is a part of the everyday life of millions of consumers across
India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin,
Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent,
Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit.
The Company has about 18,000 employees and has a net sales of INR 33895 crores (financial
year 2016-17). HUL is a subsidiary of Unilever, one of the world’s leading suppliers of Food,
Home Care, Personal Care and Refreshment products with sales in over 190 countries and an
annual sales turnover of €52.7 billion in 2016. Unilever has over 67% shareholding in HUL.
Hindustan Unilever's corporate headquarters are located at Andheri (E), Mumbai. The
campus is spread over 12.5 acres of land and houses over 1,600 employees. Some of the
facilities available for the employees include a convenience store, a food court, an
occupational health centre, a gym, a sports & recreation centre and a day care centre. The
Campus is designed by Mumbai based architecture firm Kapadia Associates.
The campus received a certification from LEED (Leadership in Energy and Environmental
Design) Gold in 'New Construction' category, by Indian Green Building Council (IGBC),
Hyderabad, under license from the United States Green Building Council (USGBC).
In the summer of 1888, Lever Brothers launched Sunlight soap bars. Soon after followed
Lifebuoy in 1895 and other famous brands like Pears, Lux and Vim. Vanaspati was launched
in 1918 and Dalda brand came to the market in 1937.
1
In 1931, Unilever set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing
Company, followed by Lever Brothers India Limited (1933) and United Traders Limited
(1935). These three companies merged to form HUL in November 1956; HUL offered 10%
of its equity to the Indian public, being the first among the foreign subsidiaries to do so.
Unilever now holds 67.25% equity in the company. The rest of the shareholding is distributed
among about three lakh individual shareholders and financial institutions.
By 1903, the company had launched Red Label tea in the country. In 1912, Brooke Bond &
Co. India Limited was formed. Brooke Bond joined the Unilever fold in 1984 through an
international acquisition. The erstwhile Lipton's links with India were forged in 1898.
Unilever acquired Lipton in 1972, and in 1977 Lipton Tea (India) Limited was incorporated.
Pond's (India) Limited had been present in India since 1947. It joined the Unilever fold
through an international acquisition of Chesebrough Pond's USA in 1986.
The erstwhile Tata Oil Mills Company (TOMCO) merged with HUL, effective from April 1,
1993. In 1996, HUL and yet another Tata company, Lakme Limited, formed a 50:50 joint
venture, Lakme Unilever Limited, to market Lakme's market-leading cosmetics and other
appropriate products of both the companies. Subsequently in 1998, Lakme Limited sold its
brands to HUL and divested its 50% stake in the joint venture to the company.
HUL formed a 50:50 joint venture with the US-based Kimberly Clark Corporation in 1994,
Kimberly-Clark Lever Ltd, which markets Huggies Diapers and Kotex Sanitary Pads. In
1992, the erstwhile Brooke Bond acquired Kothari General Foods, with significant interests
in Instant Coffee. In 1993, it acquired the Kissan business from the UB Group and the
Dollops Icecream business from Cadbury India.
As a measure of backward integration, Tea Estates and Doom Dooma, two plantation
companies of Unilever, were merged with Brooke Bond. Then in 1994, Brooke Bond India
and Lipton India merged to form Brooke Bond Lipton India Limited (BBLIL), enabling
greater focus and ensuring synergy in the traditional Beverages business. 1994 witnessed
BBLIL launching the Wall's range of Frozen Desserts. By the end of the year, the company
entered into a strategic alliance with the Kwality Icecream Group families and in 1995 the
Milkfood 100% Icecream marketing and distribution rights too were acquired.
Finally, BBLIL merged with HUL, with effect from January 1, 1996. The internal
restructuring culminated in the merger of Pond's (India) Limited (PIL) with HUL in 1998.
2
The two companies had significant overlaps in Personal Products, Speciality Chemicals and
Exports businesses, besides a common distribution system since 1993 for Personal Products.
The two also had a common management pool and a technology base. The amalgamation was
done to ensure for the Group, benefits from scale economies both in domestic and export
markets and enable it to fund investments required for aggressively building new categories.
In January 2000, in a historic step, the government decided to award 74 per cent equity in
Modern Foods to HUL, thereby beginning the divestment of government equity in public
sector undertakings (PSU) to private sector partners. HUL's entry into Bread is a strategic
extension of the company's wheat business. In 2002, HUL acquired the government's
remaining stake in Modern Foods.
In 2003, HUL acquired the Cooked Shrimp and Pasteurised Crabmeat business of the
Amalgam Group of Companies, a leader in value added Marine Products exports.
HUL launched a slew of new business initiatives in the early part of 2000’s. Project Shakti
was started in 2001. It is a rural initiative that targets small villages populated by less than
5000 individuals. It is a unique win-win initiative that catalyses rural affluence even as it
benefits business. Currently, there are over 45,000 Shakti entrepreneurs covering over
100,000 villages across 15 states and reaching to over 3 million homes.
In 2002, HUL made its foray into Ayurvedic health & beauty centre category with the Ayush
product range and Ayush Therapy Centres. Hindustan Unilever Network, Direct to home
business was launched in 2003 and this was followed by the launch of ‘Pureit’ water purifier
in 2004.
In 2007, the Company name was formally changed to Hindustan Unilever Limited after
receiving the approval of share holders during the 74th AGM on 18 May 2007. Brooke Bond
and Surf Excel breached the the Rs 1,000 crore sales mark the same year followed by Wheel
which crossed the Rs.2,000 crore sales milestone in 2008.
On 17th October 2008 , HUL completed 75 years of corporate existence in India. In January
2010, the HUL head office shifted from the landmark Lever House, at Backbay Reclamation,
Mumbai to the new campus in Andheri (E), Mumbai.
On 15th November, 2010, the Unilever Sustainable Living Plan was officially launched in
India at New Delhi.
3
In March, 2012 HUL’s state of the art Learning Centre was inaugurated at the Hindustan
Unilever campus at Andheri, Mumbai. In April, 2012, the Customer Insight & Innovation
Centre (CiiC) was inaugurated at the Hindustan Unilever campus at Andheri, Mumbai
HUL is the market leader in Indian consumer products with presence in over 20 consumer
categories such as soaps, tea, detergents and shampoos amongst others with over 700 million
Indian consumers using its products. Sixteen of HUL's brands featured in the ACNielsen
Brand Equity list of 100 Most Trusted Brands Annual Survey (2014), carried out by Brand
Equity, a supplement of The Economic Times.
Food
Homecare Brands
4
Personal Care Brands
5
2. Company Analysis
Tab. 2.1: Comparative Balance Sheet of HUL as on 31st March 2013 & 2014
6
Tab. 2.2: Comparative Balance Sheet of HUL as on 31st March 2014 & 2015
7
Tab. 2.3: Comparative Balance Sheet of HUL as on 31st March 2015 & 2016
8
Tab. 2.4: Comparative Balance Sheet of HUL as on 31st March 2016 & 2017
9
2.2. Common Size Balance Sheets
Tab. 2.5: Common Size Balance Sheet of HUL as on 31st March 2013 - 2017
1
development
Non-current
548.03 4.76 % 636.17 4.89% 654.11 4.80% 319 2.29% 260 1.76%
investments
Deferred tax
204.78 1.78 % 161.73 1.24% 195.96 1.44% 168 1.21% 160 1.08%
assets (net)
Long-term
loans and 384.29 3.34 % 605.51 4.66% 583.46 4.28% 540 3.88% 623 4.22%
advances
Other non-
296.84 2.58 % 0.68 0.01% 0.44 0.00% 41 0.29% 70 0.47%
current assets
Current assets
Current 1,782.6 15.48 2,457.9 18.91 2,623.8 19.24 17.68 23.86
2,461 3,519
investments 3 % 5 % 2 % % %
2,526.9 21.95 2,747.5 21.14 2,602.6 19.09 18.16 16.01
Inventories 2,528 2,362
9 % 3 % 8 % % %
Trade
833.48 7.24 % 816.43 6.28% 782.94 5.74% 1,064 7.64% 928 6.29%
receivables
Cash and bank 1,707.8 14.84 2,220.9 17.09 2,537.5 18.61 19.82 11.33
2,759 1,671
balances 9 % 7 % 6 % % %
Short-term
loans and 648.26 5.63 % 537.68 4.14% 657.27 4.82% 275 1.98% 378 2.56%
advances
Other current
70.74 0.61 % 71.91 0.55% 59.28 0.43% 465 3.34% 553 3.75%
assets
11,512. 12,998. 13,634.
TOTAL 100 % 100% 100% 13,920 100% 14,751 100%
47 40 06
2
2.3. Ratio Analysis
1
2.4. Trend Analysis
Fig. 2.1: Total Revenue for the years ending 2013 – 2017
Fig. 2.2: Gross Sales for the years ending 2013 – 2017
2
Fig. 2.3: Profit before Interest & Tax (PBIT) for the years ending 2013 - 2017
3
Fig. 2.5: Income Statement values for the years ending 2013 - 2017
4
Fig. 2.6: Reserves & Surplus as on 31st March 2013 - 2017
5
Fig. 2.8: Share Capital as on 31st March 2013 – 2017
6
Fig. 2.10: Balance Sheet values as on 31st March 2013 - 2017
7
2.5. BCG Matrix
High Low
5. Wheel 5. Domex
High
6. Surf Excel 6. Rin
7. Lifebuoy 7. Breeze
Market Growth
4. Red Label
8
2.6. Effect of Demonetization and GST
2.6.1. Demonetization
Due to Uncertain market conditions, the in-quarter market growth of HUL gets adversely
impacted by demonetization and the input costs continue to inflate. Still HUL has a resilient
performance in a challenging business environment.
Domestic Consumer business goes flat. The underlying volume growth becomes -4%. The
performance across categories gets impacted by adverse market conditions. EBITDA is down
by 5%. COGS get higher due to rising input costs. There are continued investments behind
brands and market development. PAT is down by 10% and Net Profit goes up by 7%.
Segmental Performance:
9
Finance - Support trade with extended credit
Supply Chain - Agile response to volatile demand
10
2.6.2. GST
In the run up to GST, there has been a cautious sentiment in trade despite high promotional
intensity. The input costs remain stable. Rural markets remained challenging. HUL delivered
a resilient & profitable growth in a volatile environment.
Domestic Consumer growth becomes 6%, underlying volume growth becomes flat. There is
price growth from actions in previous quarters. Trade spends and stocks are optimized to
manage GST transition. EBITDA goes up by 14%, margin goes up, COGS goes down.
Overall strong savings delivery continues. PAT goes up by 15%, Net Profit goes up by 9%.
Invoicing to trade
No disruption in trade servicing
First GST invoice at 00:08 hrs on 1st July
Internal systems - HUL systems working normally from Day 1
Vendors
In-bound supplies normal
Payments from the 1st working day
11
Fig. 2.12: Accounting impact of GST from September Quarter
12
Fig. 2.14: Accounting impact of GST from October onwards
13
GST 15th NOVEMBER CHANGES:
Objective: Ensure end consumer gets entire benefit from GST rate reduction with least
disruption in trade
Transition Impact:
14
3. Industry Analysis
Current Ratio
The Current Ratio for HUL is 1.31 : 1
The Industry average is 1.90 : 1
Although HUL’s current ratio is below the industry average, it's still deemed
acceptable. It means other businesses within the same industry, on average,
have a greater ability to use their current assets to pay short term debt.
Quick Ratio
The Quick Ratio for HUL is 0.98 : 1
The Industry average is 1.19 : 1
Therefore Hul’s quick ratio is below the Industry Average
It means that HUL has a relatively lower liquidity position than other
businesses within the same industry.
Other businesses within the same industry, on average, have a greater ability
to use their current assets (excluding inventory) to pay or meet their short-term
debt.
15
The Industry average is 0.46 : 1
Therefore Hul’s debt equity ratio is below the Industry Average
This indicates that HUL does not heavily rely on its creditors to finance its
operations whereas other businesses in the same industry do.
Stock Turnover
The Stock Turnover for HUL is 13.86 times
The Industry average is 8.49 times
Therefore Hul’s stock turnover is above the Industry Average
HUL’s high stock turnover ratio implies either strong sales and/or large
discounts.
*CST, Octroi, entry tax has not been considered in the pre-GST rate
16
3.4. Porter’s 9-Forces Industry Analysis
The Indian FMCG Industry is characterized with modest entry and exit barriers.
Huge investments in setting up distribution networks, brand promotion and
competition from established companies restrict new entry.
2. Threat of Substitutes
High brand loyalty for some products, thereby discouraging customers’ product shift.
Low switching cost and aggressive marketing strategies under intense competition
induce customers to switch between products, thereby driving value for money deals
for consumers.
5. Industry Competition
17
6. Political Shift
7. Economical Shift
GDP Growth: Growth of FMCG industry is consistent with the Indian economy. It
has grown over past 5 years which shows good scope for this sector in near future.
Inflation: Inflation in India has not affected the Indian FMCG sector much.
Consumer Income: Over the past years, there is an increased economic growth
resulting in increased consumer expenditure.
8. Socio-Cultural Shift
9. Technological Shift
18
3.5. Market Breakup
The FMCG sector has grown from US$ 31.6 billion in 2011 to US$ 49 billion in 2016. The
sector is further expected to grow at a Compound Annual Growth Rate (CAGR) of 20.6 per
cent to reach US$ 103.7 billion by 2020.
In 2016-17, revenue for FMCG sector have reached US$ 49 billion and is expected to grow
at 9-9.5 per cent in FY18 supported by expectations of the total consumption expenditure
reaching nearly US$ 3,600 billion by 2020 from US$ 1,469 billion in 2015.
40%
USD $49 billion
60%
Urban Rural
From the above figure accounting for revenue share of around 60 percent, urban segment is
the largest contributor to the overall revenue generated by the FMCG sector in India and
recorded a market size of around usd29.4 billion in 2016.rural segments are growing at a
rapid pace and accounted revenue share of 40 percent in overall revenues recorded by the
FMCG sector in India. FMCG products account for 50 percent of total rural spending.
19
Market Breakup by Revenue FY-16
6 7 5
9 23
15
19
16
Skincare Haircare Food Health Oral care OTC &Ethical Home care Digestive
From the above figure hair care is the leading segment, accounting for 23 percent of the
overall market revenue. Food products is the second leading segment of the sector accounting
for 19 percent followed by the health supplements and oral care which has a market share of
16 percent. OTC & Ethical is accounting 9 percent, home care has a market share of 6
percent and followed by the digestive has a market share of 7 percent of the overall revenue.
12.1
10.4
9
20
From the above figure, the FMCG sector in rural and urban India is estimated to cross 100
billion by 2025.the rural FMCG market is anticipated to expand at a CAGR of 17.41 percent
to USD 100 billion during 2009-25.
Fast-moving consumer goods (FMCG) sector is the 4th largest sector in the Indian
economy with Household and Personal Care accounting for 50 per cent of FMCG
sales in India.
The urban segment is the largest contributor to the overall revenue generated by
the FMCG sector in India and recorded a market size of around US$ 29.4 billion
in 2016-17.
It has grown at an annual average of 15 % over the last decade.
The past 3 to 5 years has seen fluctuations in the growth rate of FMCG industry
due to inflation, demonetization and GST.
The latest growth figure was 5.1 % in the urban market and 6.9% in the rural
market.
21
Modern trade is a big ticket item that is expected to grow at 20% year on year,
likely to boost revenues for FMCG players.
With the rising adoption of sales technologies and increased mobility usage, the
FMCG distribution system has become more transparent, structured and easily
compliable.
3.7. CAGR
COMPOUND ANNUAL GROWTH RATE (CAGR) in FMCG Sector over the years:
The FMCG sector in India generated revenues worth US$ 49 billion in 2016. Over 2007-
2016, the FMCG Sector posted a CAGR of 11.9% in revenues. In 2016-17, revenues for
FMCG sector have reached US$ 49 billion and are expected to grow at 9-9.5% in FY2018.
According to the report of IBEF (India Brand Equity Foundation), in the long run, with the
system becoming more transparent and easily compliable, Demonetization is expected to
benefit organized players in the FMCG Industry.
22
4. Conclusion
This sector will continue to see growth as it depends on an ever-increasing internal market for
consumption, and demand for these goods remains more or less constant, irrespective of
recession or inflation.
Availability of key raw materials, cheaper labor costs and presence across the entire value
chain gives Indian FMCG industry a competitive advantage.
Penetration level as well as per capita consumption in most product categories like jams,
toothpaste, skin care, hair wash etc. in India is low, indicating the untapped market potential.
Increasing Indian population, particularly the middle class and the rural segments, presents an
opportunity to makers of branded products to convert consumers to branded products.
23
References
https://www.hul.co.in/
https://www.ibef.org/industry/fmcg.aspx
https://en.wikipedia.org/wiki/Hindustan_Unilever
http://www.careratings.com/upload/NewsFiles/SplAnalysis/FMCG_July%202017.pdf
https://www.ibef.org/download/FMCG-July-2017.pdf
https://www.ibef.org/archives/detail/cHJlc2VudGF0aW9ucyYzNjM4MCY0NDQ=
https://www.ibef.org/industry/fmcg.aspx
http://info.shine.com/industry/fmcg/6.html
http://ideasmakemarket.com/2013/09/aug-entry9-analysis-of-fmcg-sector.html
https://www.ibef.org/download/FMCG-February-2017.pdf
http://bcgmatrixanalysis.com/bcg-matrix-of-hul/
24
Annexure A – Balance Sheets
1
Annexure B – Key Indicators
2
Annexure C – Industry Ratios