In the past five years, the valuation of the Indian FMCG major has more than doubled while parent Unilever’s market capitalisation has declined consistently since reaching a peak of $180 billion in October 2017. Unilever holds 62% in HUL.
The market capitalisation of HUL compared with its parent was at 60% a year ago and just 22% five years ago.
“HUL’s stock has rallied on expectations that it will be a top gainer when raw material prices come down and the rural market recovers. The company has also outpaced the overall market and its peers in India since the last two quarters,” said Abhijit Kundu, vice president, research, consumer and retail, Antique Broking.
HUL Accounts for 11% of Unilever Sales
“As a rule of thumb, the investor community has always linked ‘s performance to India’s growth story as it has the largest distribution network across the country and the deepest rural reach. At the same time, many of Unilever’s other markets have underperformed, a fact that makes the Indian business look significantly better in comparison.”
During the quarter ended June, HUL’s value sales rose 19% while volume increased 6%, outperforming the FMCG market that expanded 7% in value and fell 5% in volume terms in the June quarter.
For Unilever, HUL contributes about 11%, or 5.6 billion euros, to the Anglo-Dutch company’s overall sales compared to the 19%, or about 9.9 billion euros, contribution from the US business. Along with China, the US and the India markets are “highest priority countries” for Unilever, which accounted for nearly 35% of the London-headquartered consumer goods multinational’s turnover in 2021.
“HUL has been outperforming its parent in the last five years thanks to superior volume growth in India coupled with premiumisation-driven margin expansion that has helped its operating profit to outpace revenue growth,” said a senior analyst with a MNC brokerage house tracking India’s consumer sector for more than a decade. “The forward price-earnings multiple of the Indian arm stood at 64 times, while its parent traded at 18 times. This is a clear reflection of the fact that the market sees India to be one of the fastest growing for its parent in the medium term,” added the analyst.
According to a Bloomberg consensus estimate, 71% of analysts tracking HUL give it a ‘buy’ rating, 21% have a ‘hold’ view, while only 8% give it a ‘sell’ rating. The 12-month consensus target prices suggest an upside of 7% from the current level.
Brokerage house Nomura said in a recent report that HUL has managed to drive volume growth much higher compared to the industry average and has expanded its market share meaningfully by providing better price-value equations to consumers in an inflationary environment. “HUL has one of the better arsenals versus peers in the FMCG sector to land price hikes, play the price-point portfolio pyramid and claw back margins. We expect margins to bottom out in 2Q and benefits of softening input cost to drive meaningful margin improvement from the third quarter,” the report added.
India could outstrip the US to become its largest market in a decade, Unilever global chief executive Alan Jope had told ET in May this year. More recently Jope said India is a powerhouse and that the company had strong growth in the country despite a difficult environment to reach annual revenues of almost 6 billion euros.
“We saw India with tremendous volume growth and value growth in not easy circumstances. And it’s already closing in on 6 billion euros of revenue for the company.., highly, highly profitable,” Jope said during Barclays Global Consumer Staples Conference last month. “An untold story is the amount of digital innovation that’s happening in India, how we run our supply chain, route to market innovation, digital innovation, some of the marketing programmes that we are doing there and I hope that what India will be, as it will be a beacon of digital innovation as well as being a powerhouse commercially.”
