EQUITY INVESTMENT

SUGGESTION:
HINDUSTAN UNILEVER (HUL)

Abstract
To encourage investor for investment in HUL, report contain various
Financial ratios, company profile, history and overview of key company
people
 Company Name: HINDUNILVR | 500696 |
INE030A01027

Current* Share price: 2225.7

Beta: 0.07, Yield: 1.06%, EPS: 31.00 *28th July 2020

Description of Industry & The Company: Fast

Moving Consumer Goods (FMCG)

 FMCG also known as Consumer-Packaged Goods are consumed directly by the consumers and purchased
repeatedly. The Indian Fast-Moving Consumer Goods (FMCG) industry is the 4 th largest sector of the Indian
economy and is estimated to reach around 103 Billion USD in 2020 with a growth rate of 9-10%. Household
products and personal care products account for 50 %t of FMCG sales in India.
 With a population of over 120 crores, India is one among the major economies in the world with immense
purchasing power and growing consumer expenditure.
 FMCG goods are of three types- Staple Goods (Ex. Toothpaste, Toiletries etc.), Impulse Goods (Not planned
but bought due to an external stimulus. Ex- Soft Drinks, Chips etc.) and Emergency Goods (Seasonal, Ex.
Umbrella, Sweaters etc.). This sector is characterised by products that are of low value, are manufactured,
distributed, sold and used up within a short span of time. The products require frequent purchases and
depends a lot on consumer behaviour.
 FMCG sector is characterized by strong presence of global businesses, intense competition between
organized and unorganized companies, well recognized distribution network and less operational cost.
Availability of key raw materials, cheaper labour costs and existence across the whole value chain gives India
a competitive edge.
 The high growth rate in consumption, rising income levels, growing urbanisation and other favourable
demand drivers makes FMCG as one of the most attractive sectors for investors. The government’s recent
policies and initiatives to promote this sector has augured well for its growth. Steps such as allowing 100%
FDI in Single Brand Retail Trade, Implementing GST and bringing down the tax rate for high volume FMCG
goods like toothpaste, soap and hair oil etc. from 24% to 18% has helped boost this sector in recent years.
With increasing awareness, new FMCG sub-sectors will get created in the coming years.

Hindustan Unilever Limited (HUL):

 Hindustan Unilever Limited (HUL) is India’s largest FMCG Company. It is an Anglo Dutch majority (52.5
%) owned subsidiary, which has history dating back to 1888, where the parent company was exporting
products to India. The company has Indian roots for 80 years and a glorious past built on several brand
acquisitions that complemented HUL’s portfolio; strongly driven by consumer insights on changing habits
and consumption pattern of the Indian consumer in the various SEC. It is this consumer insights and strong
brand building that has led to HUL enjoying an equity with 9 out of 10 Indian household using HUL
products. It forays into offering products across TG of Indian consumer to feel good, look good and get more
out of life.
 HUL with a sales revenue of Rs. 39,136 crores have its business divided into three strong verticals - Home
care, Beauty & personal care and Food and refreshments category. Each of the verticals have numerous
brands that are strong brand leaders in their respective categories. Today. HUL has 44+ brands in 14 distinct
categories. Reach is another strength that HUL enjoys - present over 8 million+ retail outlets, HUL is further
strengthening its rural India reach with the help of its CSR initiative – Shakti that helps women empowerment
through earning potentiality and in parallel improving HUL’s penetration into over 6 lakh small villages.

Brands that are household names

Home care
Beauty and personal care
Food & refreshments
Wheel, Rin, Ariel, Domex, Vim
Lux, dove, Ponds, Vaseline, Clinic Plus, Sunsilk, Pears, Lifebuoy,
Pepsodent, Liril, Rexona, Elle 18, Glow & Lovely (formerly Fair &
lovely)
Horlicks, Bru, Knorr, Lipton, Booke bond, Kissan,

 Creating employment is another area that HUL influences as its impact on society The Company directly
employs 21000 employs across 21 factories and 15 offices across India. More than 1,150 suppliers, 4500
distributors work with the Company’s supply chain, across the company’s value chain, HUL indirectly
creates employment opportunities for several thousands. Taking on the challenges of the fast emerging
VUCA world, the company is re-imagining itself to staying ahead and has taken significant steps in
digitalization and embedding technology in all aspects of value chain. The strategy for future continues in
constantly innovating across the portfolio keeping in mind the rapidly changing consumer needs and habits.
The growth promise comes from the fact that HUL focusses on segments and offerings that have high future
growth and increasing profitability. HUL, truly lives by its belief – Purpose Led and Future Fit.

Key People in the Company:

 This dynasty created by Lever brothers in 1933 is still flying high with persistent growth because of its
refined leadership. The Board of Directors and the Management Committee that is entrusted with the
responsibility to guide the organization is a perfect mixture of young energy and experienced brains.
 The team is led by Mr. Sanjiv Mehta who took over as CEO and Managing Director from October 2013. He
has been with the organization for almost three decades. By looking at the statistics, it is very evident that the
organization has groomed its leaders for decades and held them together with the common goal and
 belongingness to the organization. It is also found that they share common ethos and values. Most of them are
being part of socially and environmentally concerned committees and advisory boards of the nation.
 “Doing Well by Doing Good”, “Continuous change for Constant stability” have been their mantra of success.
Though they have been accommodative with the need of change along with time, they stayed rooted with
their values and purpose. Hence the brand has always been future ready with newly surfacing opportunities.
Below is the battalion of HUL Leaders who convert the challenges into opportunities with passion and
commitment. In current scenario, the interviews and social media presence of these leaders exhibit that they
are highly motivated and geared up to bring changes to their business structure with COVID-19, breakdown
and digitalized lifestyle of consumers.

 Mr. Sanjiv Mehta Chairman and Managing Director

 Mr. Srinivas Phatak Executive Director, Finance & IT and Chief Financial Officer
 Mr. Dev Bajpai Executive Director, Legal & Corporate Affairs and Company Secretary
 Mr. Wilhelmus Uijen Executive Director, Supply Chain
 Mr. Aditya Narayan Independent Director
 Mr. O. P. Bhatt Independent Director
 Dr. Sanjiv Misra Independent Director
 Ms. Kalpana Morparia Independent Director
 Mr. Leo Puri Independent Director
 Dr. Ashish Gupta Independent Director

Interpretation of key financial ratios and recommendation:

 HUL is very good choice for investment and to convince investors for investment in HUL stock we have used
selective price ratios. These ratios help to justify reasonability to investment. These ratios are intuitive and
provide relative metrics. P/E & P/B, defines the price we will pay for Re.1 of earnings by HUL.

 Next, dividends are the main way companies return money to their shareholders. A higher dividend yield adds
to overall return in portfolio. Also, the percentage of profits distributed as a dividend is called the dividend
payout ratio. HUL has maintain a steady payout ratio & a higher dividend yield for last 5 yrs.
 Next the 3 important Profitability ratios calculated will tell us how good HUL is at converting business
operations into profits. Profit is a key driver of stock price. ROA of HUL helps us to interpret how good it is at
using its assets to make money. Forever Re.1 of assets it owns, it can generate Rs. 0.37 in profits in Mar’20
and so on. On the other hand, ROE tells us how HUL is at rewarding its shareholders for their investment. For
every Re.1 of equity shareholders own, HUL generates Rs. 1.16 in profits in Mar’20. A constant increasing
number of ROA & ROE Y-o-Y is a positive indicator of investment in stock. Profit margin calculates how
much of HUL’s total sales flow through to the bottom line. A higher profit is better for shareholders, as is a
high profit margin. Liquidity ratios indicate how capable HUL is of meeting its short-term obligations.

 Next liquidity is important to evaluate HUL because when at times like Covid-19, if HUL is without enough
liquidity to pay its short-term debts, it  could be forced to make unfavorable decisions in order to raise money
(sell assets at a low price, borrow at high interest rates, sell part of the company to a vulture investor, etc.). The
current ratio measures HUL’s ability to pay its short-term liabilities with its short-term assets. If the ratio is
over 1.0, it indicates that HUL has more short-term assets than short-term debts. But if the current ratio is less
than 1.0, the opposite is true and HUL could be vulnerable to unexpected bumps in the economy or business
climate. The quick ratio (also known as the acid-test ratio) measures how well HUL can meet its short-term
financial liabilities. The quick ratio backs out inventory because it assumes that selling inventory would take
several weeks or months. The quick ratio only considers those assets that could be used to pay short-term
debts today. Next, debt ratios concentrate on the long-term health of a business, particularly the effect of
the capital and finance structure on the business. The debt-to-equity ratio measures the relationship between
the amount of capital that has been borrowed (i.e. debt) and the amount of capital contributed by shareholders
(i.e. equity). In case of HUL it’s a debt free company, there is no borrowing.
 Next efficiency ratios give us insight into how efficiently HUL is employing resources invested in fixed
assets and working capital. It's can also reflect how effective HUL’s management is. The asset turnover ratio
tells us how good HUL is at using its assets to make products to sell. Forever Re.1 of assets it owns, it can
generate Rs. 4.94 in sales in Mar’20. The inventory turnover ratio measures this efficiency in cycling
inventory. A high inventory turnover ratio indicates that HUL is selling inventory (thereby having to spend
money to make new inventory) relatively quickly.
  Next annualized return indicates, HUL has shown 23.77% return Vs Nifty 50 (NSEI): 6.03%, very strong and
lucrative returns over last 10 years. Overall, we are recommending purchasing HUL shares and keeps them for
short term (6 month) to medium term (2 years from today).

Conclusion & Recommendation.

 HUL has delivered double digit sales growth YoY across all three divisions of home, personal care and food.
The company is leader in the FMCG category and very attractive growth ahead plan by leadership. In some
instant it is growing ahead of industry.
 The company continues to make margin gains through cost management and favorable product mix. We are in
strong agreement that the HUL with current competencies in term of brand, management and core
competencies are way ahead in comparison of its competitors like ITC, GlaxoSmith CHL, Nestle India and P
& G Hygiene, and will sustaining the current level of super normal growth is still viable for your investment
portfolio.
 Hindustan Unilever Ltd jumped 26.45% in last one year as compared to 6.48% spurt in the Nifty FMCG
index. In conclusion we would like to quote old stock market saying: “Bulls make money, bears make
money, but pigs get slaughtered!”. Investment in HUL will save you many times from losing on your
investment and help you making the right decision.