HUL fundamental analysis

Is Hindustan Unilever (HUL) worth investing in? HUL Fundamental Analysis

Introduction
With more than 44 brands across 14 categories, Hindustan Unilever is a part of the daily life of millions of people in India.
In fact, the company claims that more than 9 out of 10 households in India use one or more brands of HUL. It means there are high chances that you are also using one or more brands of HUL.

But how many of you know the brands of HUL?

Well, some of the popular brands of HUL include Surf excel, Rin, Wheel, Sunlight, Vim, Pureit, Lux, Lifebuoy, Dove, Fair & Lovely, Pond’s, Vaseline, Clinic Plus, Sunsilk, Indulekha, Lakmé, Pepsodent, Closeup, Axe, Brooke Bond, Lipton, BRU, Kwality Wall’s, Knorr and Kissan. Effective 1st April 2020, HUL has also acquired iconic brands like Horlicks and Boost.

So there are 2 pieces of information you need before you invest your money in a stock. 1st information is to identify whether the company is fundamentally strong or not. Obviously, you don’t want to invest in weak companies. And 2nd information is to identify the valuation of the company. Bec no matter how good a company is, you don’t want to invest when it is overvalued.

So let’s analyze if HUL is fundamentally a strong company or not and if it is overvalued, undervalued or fairly valued.

Qualitative Analysis:

Company and its management

1) HUL is the biggest FMCG company in India with a market cap of ~5 lakh Crore.

2) It was established in 1933 which makes it a 87 year old company. So it is one of the oldest companies in India.

3) HUL CEO and MD is Mr Sanjiv Mehta. He has been associated with Unilever since 26 years.

4) It is a subsidiary of Unilever group from the UK that has ~61% stake in the HUL.

Product Categories

There are 3 major categories under HUL:

1) Beauty and personal care: Axe, Dove, Lifebuoy, Lux, Pepsodent, Ponds, Rexona, Sunsilk, Tresme, Vaseline, Closeup, Fair & Lovely, Lakme, Pears, Toni&Guy, Brylcreem, clinic plus, Elle18, Hamam, Indulekha, Ayush Lever, Liril, Rexon

2) Food and refreshment: Boost, Cornetto, Horlicks, Knor, Lipton, Bru, Brook Bond Red lebel, 3 roses, Tazza, Taj Mahal, Kissan, Kwality Walls

3) Home care: Rin, Vim, Surf Excel, Wheel, Domex, Comfort

Company and its Management Score: 10/10

Competitive Advantage

1) 80+ years of market presence: In-Depth knowledge about the customer preference

2) Strong distribution network with products sold over 8 million outlets and 4500 distributors across India.

3) Brand leadership: Brands like Lux, Dove, Vaseline, Clinic Plus, Surf excel, Lakme, Closeup, Kissan, Knorr, Kwality walls need no introduction.

4) Strong marketing in both physical and digital space: HUL is one of the top spenders in India in marketing spending. This helps HUL brands to be on top of the mind recall of every consumer in India. They are also effectively utilizing the digital channel of marketing to create brand awareness.

5) Technological revolution: Under the digital transformation program, HUL is embedding the technology across the end to end value chain to build a “future-fit” business

HUL vs Competitors:

Competitive Advantage Score: 9/10

Future Scope

1) Huge scope of penetration in the tier 2, 3 and 4 market of India: Many people in small towns and villages are still using low quality unbranded products. There is huge scope for HUL to increase its presence in rural areas in India.

2) Premiumization: In laundry for instance, it is moving from powder to liquids for washing machines. In skin cleansing, there is room to increase consumption by shifting bar users to liquid In refreshments, it is adding natural care and green tea. In personal care, it is creating categories of antiperspirant, hair conditioner, liquid soap, and the likes, all to build markets of the future.

3) Urbanization: Consumers have more income in their hands, and want better lives.

4) New product launches and acquisitions: HUL has recently acquired Horlicks and Boost which help HUL strengthen its foothold in Nutrition and Health drink category which is a fast growth category in India. HUL has launched new products in hygiene category as well. Some of the new products are Lifebuoy 'germ kill spray', Domex disinfectant sprays, germ removal wipes, Lifebuoy cloth sanitizers and Surf Excel anti-germ wash booster.

5) HUL has created a sustainable living plan (USLP) which include improving the health and hygiene in India: It is increasing its nutritional portfolio to help people achieve healthier diet, it has planned to reduce the environmental impact by reducing the Co2 emission from the manufacturing, reduction in water consumption, reduction in waste generation, reduction in plastic usage, making reusable and recyclable packaging and sustainable sourcing of raw materials.

Future Growth Score: 10/10

Quantitative Analysis:

1) Growth Ratio:

A consistent increase in both revenue and profits for the last 10 years.

Growth Ratio Score: 8/10

2) Profitability

All the ratios: operating profits, ROE, and ROCE are excellent.

Profitability Ratio Score: 8/10

3) Leverage Ratio

It suggests the company is debt-free!

Leverage ratio Score: 10/10

4) Management Efficiency Ratio

Both debtor's day and inventory turnover are good.

Management Efficiency Score: 10/10

Total Fundamental Score: 67/70

It suggests that HUL is a fundamentally superstrong company!

Valuations:

Last 5 years of share price movement:

It has given a 162% return in the last 5 years.

HUL is currently trading at the level of Rs 2,188.

Current PE ratio: 68

1 Year Median PE: 66.6

3 Year Median PE: 67.7

Since the current PE of HUL is close to its 1-3 year median PE, it is trading at fair valuations.

Valuations Score: 7/10

Conclusion: So the total fundamental score of HUL is 67 out of 70 which makes it a fundamentally superstrong company. And the valuation score of HUL is 7/10 which means it is fairly valued at the current level.

What is your opinion on HUL? Do you think it is worth investing in HUL?

PS: If you want to learn how to do the fundamental analysis of a company before you invest your hard-earned money, you can enrol in the video course.

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Is Hindustan Unilever (HUL) worth investing in? HUL Fundamental Analysis

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