8/8/2019 Comparison Itc and Hul

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This week, ETIG presents a comparison between two

FMCG majors, HUL and ITC. Risk-averse investors

interested in stable business & steady dividend income can consider HUL, while ITC is suited for

adventurous investors who are hungry for growth, rather than stability.

HUL

Hindustan Unilever (HUL) is the largest pure-play FMCG company in the country and has one of

the widest portfolio of products sold via a strong distribution channel. It owns and markets some

of the most popular brands in the country across various categories, including soaps, detergents,

shampoos, tea and face creams.

PERFORMANCE: After stagnating between 1999 and 04, the company is back on the growth

track. In the past three years, HULs net sales have witnessed a CAGR of 11%, while net profit

has posted a CAGR of 17%. The company is set to gain further momentum, given the revival of

consumer spending. HUL sells products at different price points straddled between the entire

value chain. In the past few years, it has diversified into processed foods, ice-creams , water

purifiers and specialised chemicals. But home and personal care (HPC) continues to remain the

bread & butter segment for the company. This division accounted for 72% of HULs revenue and

91% of its profit (before interest and tax) during the year ended December 07. So, it wont be

wrong to call HUL a personal care major.

GROWTH DRIVERS: The company has been launching new products and brand extensions,

with investments being made towards brand-building and increasing its market share. HUL is also

streamlining its various business operations, in line with the One Unilever philosophy adopted by

the Unilever group worldwide. Introduction of premium products and addition of new consumers

via market expansion will be HULs growth drivers.

FINANCIALS: HULs net sales have recorded a CAGR of more than 11% over the past three

years, while its net profit has posted a CAGR of 17% during the same period. While its sales have

maintained a secular growth trend, profit margins have shown an erratic trend during the period.

High dividend yield, steady growth and strong market standing in its product categories have

enabled HUL to command premium valuations, compared to other FMCG companies.

RISKS: Being an MNC operating in India, HUL is more conservative in its strategies than its

Indian counterparts. Moreover, given increasing competition , it faces the risk of being overtaken

by domestic players in various categories. Prolonged inflation may lead to margin contraction, in

case HUL is not able to pass on this burden to consumers. The companys large size also poses

a problem, since it does not give HUL the agility to address the competition it faces from nationaland regional players.

TO SUM IT UP: HULs up-and-running business model is a treat for investors seeking exposure

in the FMCG segment. The company has delivered in the past and has the potential to do better

in future. In the small and medium term, HUL is a better bet than ITC.