Disclosure
The India Street analysis of India’s No.1 FMCG company
Hindustan Unilever Limited (formerly Hindustan Lever Limited) is India’s largest Fast Moving Consumer Goods company with a sales turnover of more than Rs.10,000 crores. At least one of its products reaches two thirds of Indian households. It has 35 brands and employs more than 15,000 people. Its promoter company Unilever, a fortune 500 multinational, holds 51.42% equity. Unilever has presence in more than 100 countries worldwide in FMCG sector.
Business profile:
The company’s popular brands include:
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Bathing soaps: Lux, Lifebuoy, Liril, Hamam, Breeze, Dove, Pears and Rexona
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Laundry items: Surf Excel, Rin and Wheel
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Skin care: Fair & Lovely, Pond’s and Vaseline
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Hair care: Sunsilk and Clinic
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Oral care: Pepsodent and Close up
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Deodorants: Axe and Rexona
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Colour cosmetics: Lakme
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Ayurvedic: Ayush
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Tea: Brooke Bond and Lipton
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Coffee: Bru
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Foods: Kissan, Annapurna and Knorr
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Ice cream: Kwality Wall’s
The company’s history dates back to 1931 when Unilever set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing Company, followed by Lever Brothers India Limited (1933) and United Traders Limited (1935). These three companies merged to form Hindustan Lever Limited in November 1956. Effective July 19, 2007 the company has changed the name to Hindustan Unilever Limited.
Hindustan Unilever has acquired several Indian FMCG companies so far. This includes:
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Tata Oil Mills Company
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Brooke Bond
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Lipton India
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Modern Foods
It acquired Kissan brand from UB group; Dollops ice cream brand from Cadbury India; Lakme cosmetics brands from Tata.
It has also launched Pureit, a home water purifier which supplies drinking water without boiling/need of electricity.
Hindustan Unilever Network is the direct selling channel of the company. It has about 350,000 consultants, all independent entrepreneurs, trained and guided by HLN's expert managers and trainers.
Financial performance:
| Item | 2003 | 2004 |
| Income | 10598 | 10245 |
| Expenditure | 8162 | 8490 |
| Net profit | 1772 | 1197 |
| EPS | 8.05 | 5.44 |
| Item | 2005 | 2006 |
| Income | 11365 | 12458 |
| Expenditure | 9617 | 10455 |
| Net profit | 1408 | 1855 |
| EPS | 6.45 | 8.41 |
All data except EPS are in Rs. Crores. The figures are for calendar year (January – December).
Performance in stock market:
Hindustan Unilever is a constituent of both BSE Sensex and NSE S&PCNX Nifty. In the Sensex, it has a free float market capitalization of Rs.22,185 crores and a weightage of 2.24% while in Nifty its free float market capitalization is Rs.45,629 crores and weightage is 1.93%.
Medium term view:
In my first article “INDIAN STOCK MARKET – AN OUTLOOK” we saw how the index and index constituents performed in the last 4 years. While nifty has appreciated nearly 5 times between 2003 and 2007, Hindustan Unilever nearly doubled between April 2003 and May 2006 i.e. on March 31, 2003 the close price was 148.35; on April 30, 2006 it was 289.50. Currently it is quoted at 201; the face value of its share is Re.1.
http://groups.google.com/group/theindiastreet/web/HINDUNILVR_WEEKLY.JPG
The weekly chart of Hindustan Unilever is displayed above. The stock has just managed to close above its resistance trendline last week. The support trendline too holds well so far. But the stock has to cross 218.75 on a weekly basis and close above it. Since the stock has not yet broken 185.55 on a close basis (61.8% retracement level), there is every possibility that the stock may eventually breakout on the upper side. However, a confirmation is necessary. Once it becomes bullish, we can anticipate a target of 255. It is interesting to note that this stock lost nearly half its value between January and August 2004 when Indian stock market saw one of the worst ever falls.
Long term view:
The stock is in the process of making an “inverse head and shoulder pattern” as shown in the monthly chart below.
http://groups.google.com/group/theindiastreet/web/HINDUNILVR_MONTHLY.JPG
It may be noted that the stock had broken its previous high of 266 (made during March 2002) in April 2006 on a close basis. The current decline can be visualized to be the right shoulder. The 61.8% retracement holds well in monthly charts too. So, we can expect that once the pattern is formed and confirmed, the stock may move up further.
On July 29, 2007 the company had announced that the board of directors had approved the buy back of the company's equity shares (through open market purchase) at a price not exceeding Rs.230 per share and up to an aggregate amount of Rs.630 crores, being within 25% of the total paid-up capital. However, this announcement had little impact on the stock, an indication that the market probably looks for a better price.
Conclusion:
Medium term and long term investors can remain invested in the stock, since both favour bullishness. But this stock has yielded relatively less compared to many other index stocks like ABB or SAIL; those who wish to change their portfolio may accordingly modify their holdings.
Sundaramurthy Vadivelu
