A Valuable FMCG Company for Long Term Investment

A household name for FMCG products in India, the company has strong visibility in growth and earnings in India’s long runway story - As investors shift to safe havens, the Stock has rallied significantly in past few weeks. The question is, if this ‘driver of consumption’ valuable at this Price?

Revenue for FY20 stood at INR 397.8 Billion recording a 1.20% Y-O-Y growth with an Operating Profit Margin of 22.27%. For Q4 FY20, revenues were at INR 92.11 Billion with a negative growth Year-on-Year and an Operating Profit Margin of 19.85%. In the past 5 years, revenue has compounded by about 4.60%. The OPM improved from 15.2% in FY 2015 to 22.2% in FY 2020.

The Company attributed the Q4 decline due to supply chain disruption during the first phase of the Lockdown. The Lockdown is expected to affect the production and demand destruction till September 2020 and then show improvements.

Stock Returns	Percentage
1 Year	23.82%
3 Years	28.00%
5 Years	19.30%
10 Years	24.24%

PRICE CHART

COMPANY OVERVIEW

Hindustan Unilever is India’s largest fast-moving consumer goods (fmcg) company with a historical presence in India of over 80 years. Nine out of ten Indian households use one or more of its brands to feel good, look good and get more out of life, giving them a unique opportunity to contribute towards a brighter future for its customers and consumers.(Source : 201903 Annual Report Page No: 2)

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 Croress 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.

MARKET CAPITAL

Hindustan Unilever Ltd is a Large Cap Company having a market cap of ₹ 490,910 Crore.

SECTOR

The Company is operating in CONSUMER GOODS (FMCG) sector.

SWOT ANALYSIS

STRENGTHS:

v  Return on equity (ROE) improving since last 2 year

v  Net Profits improving for last 5 years

v  ROA improving since last 2 year

v  Company with Low Debt

v  Book Value per share Improving for last 2 years

  

WEAKNESS:

v  Decline in Net Profit (QoQ)

v  Degrowth in Quarterly Revenue and Profit in Recent Results

v  Declining profits every quarter for the past 2 quarters

v  Recent Results: Declining Operating Profit Margin and Net Profits (YoY)

v  Decline in Quarterly Net Profit (YoY)

v  Declining Revenue every quarter for the past 3 quarters

v  Declining Net Cash Flow : Companies not able to generate net cash

v  Recent Results : Fall in Quarterly Revenue and Net Profit (YoY)

OPPURTUNITIES:

v  Big Deal (Insider and SAST) buys last month greater than 1% of total shares

v  Positive breakout Second resistance ( LTP > R2)

v  Brokers upgraded recommendation or target price in the past three months

THREATS:

v  The Lockdown is expected to affect the production and demand destruction till September 2020.

v  Degrowth in Revenue, Profits and Operating Profit Margin in recent results (QoQ)

v  Increasing Trend in Non-Core Income

v  RSI indicating price weakness

QUARTERLY FINANCIALS

REVENUES:

For the quarter ended 31-03-2020, the company has reported a Consolidated Sales of ₹ 9211 Crore, declined 10% from last year same quarter Sales of ₹ 10201 Crore and the last quarter Sales was ₹ 10103 Crore.

  

NET PROFIT:

Company has reported net profit after tax of ₹ 1515 Crore in latest Quarter, declined 3.56% from last year same quarter Net Profit of ₹ 1792 Crore and the last quarter Net Profit was ₹ 1627 Crore.

Quarterly Results	Jun-18	Sep-18	Dec-18	Mar-19	Jun-19	Sep-19	Dec-19	Mar-20
Sales	9778	9490	9841	10201	10364	10105	10103	9211
% Growth YOY					6%	6%	3%	-10%
Expenses	7459	7416	7748	7807	7654	7603	7574	7119
Operating Profit	2319	2074	2093	2394	2710	2502	2529	2092
Other Income	72	186	15	49	166	76	5	205
Depreciation	138	140	143	144	229	254	248	271
Interest	7	10	9	7	27	34	27	30
Profit before tax	2246	2110	1956	2292	2620	2290	2259	1996
PBT Margin	23%	22%	20%	22%	25%	23%	22%	22%
% Growth YOY					17%	9%	15%	-13%
Tax	677	637	512	718	825	472	628	484
Net profit	1565	1478	1440	1571	1792	1814	1627	1515
% Growth YOY					14.50%	22.73%	12.99%	-3.56%
OPM	24%	22%	21%	23%	26%	25%	25%	23%
Source : Company Data, FINVESTEDGE

YEARLY FINANCIALS

HUL’s revenue for the financial year ended FY2012, grew by 1.20% YoY basis to Rs. 39783 Crores as compared to Rs. 39310 Crores reported a year ago due to supply chain disruption during the first phase of the Lockdown on the outbreak of Covid-19 Pandemic. Despite a tepid growth in Top-line from FY 2019, HUL has posted a healthy growth in EBITDA of 12% YoY basis to Rs.10285 Crores as compared to 9202 Crores last year ago. HUL has further improved its EBIT to 7% YoY basis to Rs.9238 Crores as compared to last year Rs.8637 Crores whereas Net Profit has grown by 11% YoY basis to Rs.6748 Crores from Rs.6054 Crores last year.

The company posted an EPS of Rs.31.17 which is up by 11% from last year.

Yearly Results	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20
Sales	31972.19	32186	33162	35545	39310	39783
% Growth YOY	9.4%	0.7%	3.0%	7.2%	10.6%	1.2%
Expenses	26576.14	26276	26895	28140	30434	29950
Operating Profit	5396.05	5910	6267	7405	8876	9833
Operating Profit Margin	17%	18%	19%	21%	23%	25%
Other Income	1263.55	486	667	447	326	452
EBITDA	6659.6	6396	6934	7852	9202	10285
% Growth YOY	20%	-4%	8%	13%	17%	12%
Depreciation	322.39	353	432	520	565	1002
EBIT	6337.21	6043	6502	7332	8637	9283
% Growth YOY	21%	-5%	8%	13%	18%	7%
Interest	17.7	17	35	26	33	118
Profit before Tax	6319.51	6026	6467	7306	8604	9165
% Growth YOY	21%	-5%	7%	13%	18%	7%
PBT Margin	20%	19%	20%	21%	22%	23%
Tax	1944	1875	1977	2079	2544	2409
Tax Percentage	31%	31%	31%	28%	30%	26%
Net profit	4363.08	4151	4476	5214	6054	6748
% Growth YOY	11%	-5%	8%	16%	16%	11%
Net Profit Margin	14%	13%	13%	15%	15%	17%
EPS	20.17	19.18	20.68	24.09	27.97	31.17
% Growth YOY	11%	-5%	8%	16%	16%	11%
Source : Company Data, FINVESTEDGE

GROWTH TRENDS

  

TRENDS:	10 YEARS	7 YEARS	5 YEARS	3 YEARS
Sales Growth	7.10%	5.70%	4.50%	6.30%
PBT Growth	12.00%	8.80%	7.70%	12.30%
PBT Margin	19.00%	20.20%	20.70%	21.80%
Price to Earning	44.1	50.9	55.9	63.4
Source : Company Data, FINVESTEDGE

The 10 year compounded annual growth rate of HUL’s Sales, PBT, and PAT Margin is 7.10%, 12% & 19% respectively.

RATIO ANALYSIS

HUL’s ROE has surged to 82% from 77% a year ago whereas its ROCE has also surged to 108% from 112% a year ago. Healthy return ratio and zero debt make HUL a company value for investing.

Particulars	Mar-15	Mar-16	Mar-17	Mar-18	Mar-19	Mar-20
Sales Growth	9.37%	0.67%	3.03%	7.19%	10.59%	1.20%
PBT Growth	21.18%	-4.64%	7.32%	12.97%	17.77%	6.52%
Net Profit Growth	10.58%	-4.86%	7.83%	16.49%	16.11%	11.46%
Dividend Growth	15.43%	6.49%	6.25%	17.65%	10.00%	9.34%
Operating Cash Flow Growth	-13.78%	26.70%	24.31%	16.86%	-4.27%	31.43%
Free Cash Flow Growth	-20.44%	46.27%	25.40%	13.07%	-5.32%	28.67%
Operating Margin	16.88%	18.36%	18.90%	20.83%	22.58%	24.72%
PBT Margin	19.77%	18.72%	19.50%	20.55%	21.89%	23.04%
Net Margin	6.75%	3.56%	-0.46%	6.84%	8.32%	6.53%
Return on Equity	108.33%	63.15%	66.37%	71.61%	76.95%	82.00%
Return on Capital Employed	155.69%	89.53%	92.61%	100.70%	108.42%	112.81%
Free Cash Flow (Rs Cr)	3337.71	4882	6122	6922	6554	8433
Debtor Days	11.53	14.33	11.94	13.45	16.86	10.54
Inventory Turnover	11.22	11.81	13.05	14.14	15.27	14.38
Fixed Asset Turnover	11.33	9.88	7.50	7.85	8.34	7.26
Debt/Equity	0.01	0.03	0.04	0.00	0.01	0.00
Debt/Assets	0.29%	1.17%	1.72%	0.00%	0.52%	0.00%
Interest Coverage (Times)	358.03	355.47	185.77	282.00	261.73	78.67
Source : Company Data, FINVESTEDGE

SHAREHOLDING

Category	Percentage
Promoter Group	61.91%
Foreign Institution	12.04%
Domestic Institutions	15.03%
General Public	11.02%

VALUATION

HUL is currently trading at extremely reasonable valuations and given the company’s leadership in various segments it is definitely a grab at current price given its strong fundamentals and clean balance sheet, management and efficiency in operations.

RATINGS

Earnings Quality Grade:  B

A: Indicates earnings quality is high or far above average.

B: Indicates earnings quality is good and/or above average.

C: Indicates earnings quality is acceptable or average.

D: Indicates earnings quality is poor and requires thoughtful due diligence.

F: Indicates the quality of the earnings is poor or far below average requiring serious due diligence.

Risk / Stability Ratings:  B

A: Indicates a company with a strong balance sheet, a positive business environment, and solid dividend history.

B: Indicates a company with a good balance sheet, a stable business environment, and solid dividend history.

C: Indicates a company with a sufficient balance sheet and good prospects for maintaining its dividend policy.

D: Indicates a company in good standing but has issues that could affect its stability and long term risks.

F: Indicates a company with significant issues that are currently affecting its stability and long term risks.

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