Hindustan Unilever Limited

FMCG – Hindustan LEVER

INDIA IS BECOMING A LARGE AND PROSPERING
ECONOMY
Opportunity to be a $10Tn
Opportunity to be a $10Tn
Opportunity to be a $10Tn
economy in next 15 years
economy in next 15 years
Sixth largest economy Fastest growing economy
economy in next 15 years

~ 7% sustained GDP growth rates

6.8%

4.1%

$ 10 Tn
Shift
Momentum

Pre Liberalization Post Liberalization

1960-1991 1991-2017

Consumption component of GDP @ 2017 2032

60%
Key Macroeconomic Indicators
GDP & Growth CPI Inflation

160 9% 6%
141
140 132 4.9%
123 5%
4.5%
120 114
8.2% 8% 4% 3.6%
100 3.4%
8.0%
80 3%

60 2%
7.2% 7%
40
6.8% 1%
20

0 6% 0%
2016 2017 2018 2019 2016 2017 2018 2019

GDP (INR tn) Growth

INDUSTRY - FMCG

Consumer goods are products purchased for consumption by the average consumer.

They are divided into three different categories:

a) Durable
b) Nondurable goods
c) Services

Fast-moving Consumer Goods have such a high turnover rate, the market is not only very
large, it is also very competitive. Some of the world's largest companies compete for market share in
this industry including Coca-Cola, Unilever, Procter & Gamble, Nestlé, Kellogg's, and General Mills.
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Companies like these need to focus their efforts on marketing fast-moving consumer goods to entice
and attract consumers to buy their products.

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FMCG continues to be a big opportunity in India

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 ECONOMIC ANALYSIS
FMCG is the 4th largest sector in the Indian economy

 FMCG market in India is expected to grow at a CAGR of

27.86 % and is expected to reach US$ 103.70 billion by 2020
from US$ 52.75 billion in FY18

 Final consumption expenditure is set to increase at a CAGR

of 25.44 % from 2017-2021

 Final consumption expenditure is expected to reach nearly

US$ 3.6 trillion by 2020 from US$ 1.82 trillion in 2017

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 Rise in rural consumption to drive the FMCG market. In
FY18, Rural consumption rose by 9.7 %

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 The rural FMCG market in India is expected to grow to US$
 from US$ 23.63 billion in FY18
220.00 billion by 2025

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STRONG GROWTH IN INDIAN FMCG SECTOR
 Projected Growth of FMCG sector for year 2019 is 11-
12%

 Revenues of FMCG sector reached Rs 3.4 lakh crore

(US$ 52.8 billion) in FY18 and are estimated to reach
US$ 103.7 billion in 2020.

 FMCG sector has witnessed the growth of 16.5 % in

value terms between July-September 2018

 The Union Budget 2019-20 initiatives to increase

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consumer spending among middle class are expected
to boost consumer confidence and improve demand
generation for branded consumer products

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Trends in FMCG revenues over
the years (US$ billion)

 Accounting for a revenue share of around 55 %, urban

segment is the largest contributor to the overall revenue
generated by the FMCG sector in India
 Rural segment is growing at a rapid pace and accounted for a
revenue share of 45 % in the overall revenues recorded by
FMCG sector in India. FMCG products account for 50 % of
total rural spending
 FMCG urban segment is expected to have a steady revenue
growth at 8 % in FY19

Urban Market Accounts For Major Chunk

Of Revenues
BOOSTS IN FDI INFLOWS AND INVESTMENTS
 100 % FDI is allowed in food processing and single-brand
retail and 51 % in multi-brand retail

 This would bolster employment and supply chains, and

also provide high visibility for FMCG brands in organized
retail markets, bolstering consumer spending and
encouraging more product launches

 The sector witnessed healthy FDI inflows of US$ 14.42

billion during April 2000 to December 2018

 Within FMCG, food processing was the largest recipient;

its share was 62.03 %

 Investment intentions, related to FMCG sector, arising

from paper pulp, sugar, fermentation, food processing,
vegetable oils and vanaspati, soaps, cosmetics and Cumulative FDI inflow share – April 2000 to
toiletries industries, worth Rs 916.13 billion (US$ 15.55 December 2018 (US$ million)
billion) were implemented between April 2000-December
IMPACT OF THE FMCG SECTOR IN INDIA
SOCIAL CONTRIBUTION
 It creates employment for people with lower educational
qualifications
 It encourages many to become small entrepreneurs by setting up
their own kirana stores
 FMCG companies have undertaken specific projects to integrate
with rural India

FISCAL CONTRIBUTION
 Cascading multiple taxes (import duty, CENVAT, service tax,
CST, State VAT, octroi / entry tax, and income tax) are paid at
multiple points by the FMCG sector.
 On an average, ~30% of the sector’s revenue (USD13.5 bn) goes
into direct and indirect taxes

EMPLOYMENT
 The FMCG sector is one of the largest employers in India.
 The sector’s total salary out lay on direct employment is
estimated at approximately 6% of turnover (USD2.7 bn).
 Out of the ~12–13 million retail stores in India, ~9 million are
FMCG kirana stores
Total FMCG sector Revenue (2018- 2019)
FMCG SECTOR PEST ANALYSIS
FMCG SECTOR PEST ANALYSIS
Economical Technology

GDP Growth: Growth of FMCG industry is consistent with
the Indian economy. It has grown by 15 % over past 5 years.
It shows good scope for this sector in near future
Inflation: Inflationary pressures alter the purchasing
power of consumer which Indian economy is facing in
recent years. But it has not affected much to Indian FMCG
sector
Effective use of technology is seen only in leading
companies like HUL, ITC etc
E- Commerce will boost FMCG sales in future. More than
150 million consumers would be influenced by digital by
2020 and they will spend more than $45 billion on FMCG
categories -CII

Consumer Income: Over the past few years, India has seen
increased economic growth. The GDP per capita income of
India increased from1262.4 US dollars in 2014 to 2500 US
dollar by end of this quarter. It resulted in increase of
consumer expenditure.

Private Consumption: The Indian economy, unlike other

economies, has a very high rate of private consumption
(61%)
NIFTY FMCG Index: The index is designed to reflect the
behaviour and performance of Fast Moving Consumer Goods
(FMCG). They are those goods and products, which are non-
durable, mass consumption products and available off the shelf.
The index comprises of maximum of 15 companies and base date
of the index is January 1, 1996 and base value of 1000 points.

Hindustan Unilever Ltd

SYMBOL - HINDUNILVR
PORTFOLIO OF ICONIC BRANDS

Hair Care Color Cosmetics Laundry Tea

SALES & MARKET CAPITALIZATION
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Net Sales EBIDTA Market Capitalization

Rs. 37,660 Cr.*

EBITDA margin 23%*

2.3X + 740 bps delta 7.1X

~Rs. 21,000 Cr. added^ ~Rs. 6,000 Cr. added ~Rs. 318,000 Cr. added
Income Statement
Key Ratios
FY17 FY18 FY19 FY20E FY21E
GPM 51 52.9 54 54.8 55.5
EBITDA Margin 19.1 21.1 22.2 23.3 24.1
EBIT Margin 17.8 19.6 20.9 22.1 22.9
APAT Margin 12.8 14.4 15.7 16.8 17.8
RoE 63.7 72 78.4 81 80.7
RoCE 61.4 70.5 78.4 81 80.7
Net D/E x -0.7 -0.9 -0.9 -1 -1
Per Share Data
EPS 19.6 23.7 29.4 35.6 42.7
CEPS 21.6 26.1 31.8 38.2 45.4
Dividend 17 20 23.5 27 30.5
Book Value 31.3 34.7 40.2 47.7 58.1
VALUATION
P/E 80.1 66.3 53.6 44.2 36.8
P/BV 50.3 45.3 39.1 33 27
EV/EBITDA 52.9 44.5 37.1 31 26.2
EV/Revenues 10.1 9.4 8.2 7.2 6.3
OCF/EV 1.7 2.1 2.1 2.5 3
FCF/EV 1.2 1.8 2 2.4 2.9
FCFE/Mkt Cap (%) 1.2 1.7 2 2.3 2.8
Dividend Yiels (%) 1.1 1.3 1.5 1.7 1.9
OUTSTANDING PERFORMERS IN LAST 6 YEARS

Hair Care Color Cosmetics Laundry Tea

COMPANY GROWTH AND PERFORMANCE
BIG GLOBAL BRANDS
Top 25 brands = 75% of Unilever’s sales*.

* As at end 2009
THE SUPPLY CHAIN
Distribution And Retailing

• Around one-fifth of Unilever’s sales are

through ten major retail chains.
• HUL products are sold in over 10 million
small shops in developing and emerging
markets.
• 50% of sales from developing and emerging
markets.
CUSTOMER PARTNERSHIPS

Unilever manages a number of partnerships globally.

RECOGNITIONS
2015 2017 & 2018 2019 - 2018

ET – Company of Employer of Choice in the

the year Most Innovative
Industry - 10 years in a row
#8 Globally & #1 in India

2018
2018 2018 2018

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the year
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ET – Corporate Citizen of Business Standard –
Company of the year
Open Republic Achievers
Awards
AIMA - Business Leader
of the year

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SOCIAL RESPONSIBILITIES
HUL is helping society through its products and programmes.

By 2020 we will help more than a billion people

take action to improve their health and well-
being
By 2020 HUL is committed to enhance the
livelihoods of millions of people as we grow
business too
45,000 women entrepreneurs reach 3 million
consumers in 100,000 Indian villages selling
Unilever products door to door
By 2030 HUL goal is to halve the environmental
footprint of the making and use of products
SWOT ANALYSIS

Strength Weakness Opportunity Threats

Variety of products Increasing

Not able to compete
consumption
with local
pattern
High Brand image competitor in rural
market
High End
Quality Management Huge Market
Competition

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Innovation and R &
Pricing policy has to
be improved Increasing per
Strong Distribution capita income

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PORTER’S FIVE FORCES ANALYSIS
Bargaining
Threat of New Bargaining Threat of Rivalry Among
Power of
Entrants Power of Buyers Substitute Existing Firms
Suppliers
• Economies of Scale • Suppliers base very • Weak Bargaining • Few substitutes • The number of
high so less control Power as less firms available are of high competitors in the
• Product
over price of buyer producing products quality but are way industry are very
Differentiation
more expensive few. Most of these
• Standardized • High Product
• Advertising are also large in size.
products less differentiation
• Outstanding differentiated • High exit barriers
• Income of buyers
customer Service due to regulations
• No substitute of within industry low
• High Expenditure and huge investment
few products that so buyer is price
on R & D makes firms
supplier provide sensitive
reluctant to leave the
• Access of
Distribution channel
Easy for new
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continue at low
profits.
entrants
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FAST-MOVING CONSUMER GOODS AND E-COMMERCE

Shoppers across the globe increasingly purchase things they need online because it offers
certain conveniences— from delivering orders right to the door to broad selection and low
price.

The most popular e-commerce categories, not surprisingly, are non-consumable goods—
durables and entertainment- related products. The online market for buying groceries and
other consumable products is growing, as companies redefine the efficiency of delivery
logistics which shorten delivery times