; 634491790250000000 Fundamental report HUL
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634491790250000000 Fundamental report HUL


  • pg 1
									                                 FUNDAMENTAL VIEW
                                   17 th Aug 2011


        FMCG sector also called as Consumer Packaged Goods. It
deals with production , distribution , and marketing of Fast
Moving Consumer Goods. Fast Moving Consumer Goods are
quickly sold and at the lower cost due to low cost the profit is
relatively less. Frequently used consumer products are soaps,
detergent, teeth cleaning products. FMCG sector dominated by
multinational companies with strong distribution skills. The major
player of FMCG sector is Hindustan Unilever, Nestle, Proctor and
Gamble, Wipro consumer products.
Indian Consumer Market:-

    from Total Income Indians spend 40% on grocery iteams and
8% on personal care so India is a largest market for fmcg sector.
Large growing youth population. India is amongst the World’s
youngest nation with median age of 25 years as compared to 43 in
Japan and 36 is the US. Development of real estate development in
a country such as shopping mall construction , supermarkets
which are opening new business for FMCG sector.
Economic Overview:-
     The Indian FMCG sector is an important contributor to the
country’s GDP. The FMCG sector is the forth largest sector in
Indian Economy. Inflation led price hike and contribution from
acquisitions is expected sales growth and strong growth for fast
moving consumer goods.

      AS inflationary pressure are quite high and high input cost
are likely affect the growth prospect. Its good time to Invest in
FMCG sector as this sector is less volatile than any other sector. It
is generally believe that high inflation in the economy leading to
the high prices of Raw Material. but this is not true due to margin
cost is not more than 40 to 45 % and raw material cost by 20 to
25% . so when inflationary pressure their in the economy the
company needs to increase their prices by 2 to 4 % to ensure that
inflation doesnot affect the profit of the company. And the business
runs on its brand value which is strong.
      While several companies within the FMCG sector can offer a
good hedge against inflation. Although Volume growth in a Major
FMCG categories has remained unaffected. a Nielsen report
throws up some surprise on certain essential food categories that
have been impacted. There is no explanation as why customers
shifted out from essential products to non essential products.
Marketers believe that advertising small discount packages ,
promotional activities , has done the trick which help in a growth
of sales eg. Cadbury Dairy milk has increased their cost for
advertising and promotional activities by 40% it resulted in 27%
rising in profit.

     Hindustan Unilever Limited is India’s
largest fast moving consumer goods company,
with leadership in Home and Personal care
products and Food & Beverages. HUL brands
touch the lives of two out of three Indians. They
endow the company 19400 crores.

Company and products:-
     Hindustan Unilever Limited:- Hindustan Unilever Limited is
India’s oldest FMCG company owned by European Unilever
group incorporated in 1933. The Company Deals in food and
nutrition, personal and home care brands. Annapurna, Brooke
Bond Taza, Bru, kissan Knnor, Kwality Walls, Lipton, Lux, pears,
Red lable, Taj Mahal, Clinic plus, Dove, Fair and lovely, Hamam
Lakme, Pepsodent, Domex , surf excel, rexona soap.

Colgate-Palmolive Limited – The Company has acquired
popularity among the consumers for their oral, skin care and home
care products. It is specialized mainly in manufacturing the daily
consumed products.

Dabur India Limited – The DIL is one of the famous companies in
the country which produce the ayuvedic products and health care
products. They also manufacture various other products for oral
care, skin care, home care, hair care and foods. The company has
experience in this field for more than 125 years.

Cadbury India Limited – The CIL is the popular company in the
country which manufactures the high demand products like
confectionery, quick meals and snacks. It has operation centers in
70 countries and serves the consumers in more than 160 countries
in the world. They deliver the products under various brand

                 MARKET       SALES         NET      TOTAL
HUL                  70070.97       19333.3  2305.97   2633.92
DABUR INDIA          18967.39       3287.67   471.43   1354.51
CONSUMER              13818.92       2442.64    434.96     1806.18
COLGATE               13187.22       2296.66    402.58      384.09
MARICO                  9972.1       2353.71    315.33     1425.61
EMAMI                  7503.55       1221.15    227.49      912.39
India                  7387.07        852.48     137.1      570.99
GODREJ IND             7003.63       1145.84    133.43     1644.38
P AND G                6255.18        904.46    179.76      534.65
JYOTHY LABS             1862.6        608.02     80.27       399.1
                                   MARKET CAP
       HUL                 DABUR INDIA             GODREJ CONSUMER    COLGATE
       MARICO              EMAMI                   GILLETTE India     GODREJ IND
       P AND G             JYOTHY LABS

                                5%            1%
                      5%                 4%

                 6%                                                  45%







                                                                                   NET PROFIT
                                                                                   TOTAL ASSETS



                                            No. Of
Category                                    Folio       Shares held % of holding

Unilever and its Associate                         9 1134849460                   52.55
Mutual fund & Unit trust of
India                                          212        65092620                 3.01
Financial Institution / Banks                  157         8497806                 0.39
Insurance company                               22       372806669                 8.94
Foreign Institutional Investor                 427       372806669                17.27
Bodies Corporate                              2951        55603214                 2.58
NRI/ Foreign Bodies                           4131         7180228                 0.33
Director and their relatives                    22          134848                 0.01
Resident Indiviual and others               335994       322195514                14.92

                                   % of holding
                                                 Unilever and its Associate
             Mutual fund & Unit trust of India   Financial Institution / Banks
             Insurance company                   Foreign Institutional Investor
             Bodies Corporate                    NRI/ Foreign Bodies
             Director and their relatives        Resident Indiviual and others

                       3% 0%
                        0%   17%                           53%

                                   0% 3%
Balancesheet - Hindustan Unilever Ltd.

Particulars                                        Mar'11    Mar'10      Mar'09
                                                   12                    12
Liabilities                                        Months    12 Months Months
Share Capital                                         215.95      218.17    217.99
Reserves & Surplus                                  2,417.30    2,364.68  1,842.85
Net Worth                                           2,633.92    2,583.52  2,061.51
Secured Loans                                              0           0    144.65
Unsecured Loans                                            0           0     277.3
TOTAL LIABILITIES                                   2,633.92    2,583.52  2,483.45
Gross Block                                         3,759.62       3,581.96    2,881.73
(-) Acc. Depreciation                               1,590.46       1,419.85    1,274.95
Net Block                                           2,168.49       2,161.44    1,606.11
Capital Work in Progress.                             299.08         273.96      472.07
Investments.                                        1,260.68       1,264.08      332.62
Inventories                                         2,811.26       2,179.93    2,528.86
Sundry Debtors                                         943.2         678.44      536.89
Cash And Bank                                       1,640.01       1,892.21    1,777.35
Loans And Advances                                  1,099.72       1,068.31    1,196.95
Total Current Assets                                6,494.19       5,818.89    6,040.04
Current Liabilities                                 6,264.21       5,493.97    4,440.08
Provisions                                          1,324.98       1,441.55    1,527.98
Total Current Liabilities                           7,589.19       6,935.52    5,968.06
NET CURRENT ASSETS                                 -1,095.00      -1,116.63       71.98
Misc. Expenses                                             0              0           0
TOTAL ASSETS (A+B+C+D+E)                            2,633.92       2,583.52    2,483.45

Particulars                                        March'11 March'10 March'09

Profit Before Tax                                   2,730.18    2,707.07    3,025.12
Net Cash Flows from Operating Activity              1,890.57    3,432.37    2,028.65
Net Cash Used in Investing Activity                   134.99   -1,137.46      878.19
Net Cash Used in Financing Activity                -2,277.75   -2,180.32   -1,330.36
Net Inc/Dec in Cash and Cash Equivalent             -252.19     114.59     1,576.49
Cash and Cash Equivalent - Beginning of the Year    1,892.20    1,777.62      200.86
Cash and Equivalent - End of the Year               1,640.01    1,892.21    1,777.35
     P & L A/C

Particulars               March'11    March'10     March'09
                          12                       12
                          months      12 months    months
Sales turneover           20,598.89    18,462.34 21,927.23
Excise Duty                  908.98       693.22 1,422.95
Net Sales                 19,689.91    17,769.12 20,504.28
Other Income                   0.00         0.00      0.00
Total Income              19,944.72    17,913.48 20,679.22
Manufacturing Expenses       825.99       656.53    598.71
Material Consumed         10,199.25     8,984.50 10,945.71
Personal Expenses            961.27        936.3 1,152.12
Selling Expenses           3,811.55     3,262.12 3,277.74
Administrative Expenses    1,227.36     1,131.97 1,565.05
Expenses Capitalised              0            0         0
Provisions Made                   0            0         0
TOTAL EXPENDITURE         17,025.42    14,971.42 17,539.33
Operating Profit           2,664.49     2,797.70 2,964.95
EBITDA                     2,919.30     2,942.06 3,139.89
Depreciation                 220.83       184.03     195.3
Other Write-offs                  0            0         0
EBIT                       2,698.47     2,758.03 2,944.58
Interest                       0.24         6.98     25.32
EBT                        2,698.23     2,751.05 2,919.26
Taxes                        573.87       648.36    572.94
Profit and Loss for the
Year                       2,124.36     2,102.69    2,346.32
Non Recurring Items          184.67        55.37       101.6
Other Adjustments                 0            0        4.26
REPORTED PAT               2,305.97     2,202.03    2,500.71

Preference Dividend               0            0         0
Equity Dividend            1,410.60     1,417.94 1,634.51
Equity Dividend (%)           653.2       649.92    749.81
Shares in Issue (Lakhs)   21,594.72    21,816.87 21,798.76
EPS - Annualised (Rs)         10.68        10.09      9.18
Key financial ratio of Hindustan

Investment Valuation Ratios                 Mar '11           Mar '10 Mar '09
Face Value                                             1             1       1
Dividend Per Share                                   6.5           6.5     7.5
Operating Profit Per Share (Rs)                    12.34        12.82    13.6
Net Operating Profit Per Share (Rs)                91.18        81.45   94.06
Free Reserves Per Share (Rs)                       11.04         10.7      8.3
Bonus in Equity Capital                            60.98        60.36    60.4
Profitability Ratios                               13.53        15.74   14.46
Operating Profit Margin(%)                         13.53        15.74   14.46
Profit Before Interest And Tax Margin(%)           12.25        14.59   13.39
Gross Profit Margin(%)                             12.41         14.7    13.5
Cash Profit Margin(%)                              11.75        12.76   12.29
Adjusted Cash Margin(%)                            11.75        12.76   12.29
Net Profit Margin(%)                               11.56        12.29   12.09
Adjusted Net Profit Margin(%)                      11.56        12.29   12.09
Return On Capital Employed(%)                     102.47       106.78  118.59
Return On Net Worth(%)                             87.57        85.25  121.34
Adjusted Return on Net Worth(%)                    80.67         81.4  113.85
Return on Assets Excluding Revaluations            12.19        11.84    9.45
Return on Assets Including Revaluations             12.2        11.84    9.46
Return on Long Term Funds(%)                      102.47       106.78  142.88
Liquidity And Solvency Ratios
Current Ratio                                          0.86      0.84     0.92
Quick Ratio                                            0.43      0.46     0.51
Debt Equity Ratio                                                          0.2
Long Term Debt Equity Ratio
Debt Coverage Ratios
Interest Cover                                 11,243.63       395.13   116.28
Total Debt to Owners Fund
Financial Charges Coverage Ratio               12,163.75        421.5   123.99
Financial Charges Coverage Ratio Post Tax      10,529.33       342.84   107.47
Management Efficiency Ratios
Inventory Turnover Ratio                               7.91      8.99     9.26
Debtors Turnover Ratio                                24.28     29.24    41.83
Investments Turnover Ratio                             7.91      8.99     9.26
Fixed Assets Turnover Ratio                            5.63      5.35     7.81
Total Assets Turnover Ratio                            8.31      7.66     9.22
Asset Turnover Ratio                                 5.63     5.35    7.81
Average Raw Material Holding                        61.54    51.08   72.27
Average Finished Goods Held                         35.15    32.05   34.18
Number of Days In Working Capital                  -20.02   -22.62    1.58
Profit & Loss Account Ratios
Material Cost Composition                           53.29   50.67     55.5
Imported Composition of Raw Materials Consumed       19.2   18.61    21.65
Selling Distribution Cost Composition               19.35   18.35    15.98
Expenses as Composition of Total Sales               7.25    7.31     9.47
Cash Flow Indicator Ratios
Dividend Payout Ratio Net Profit                     71.2    75.2    76.47
Dividend Payout Ratio Cash Profit                   64.98    69.4    70.93
Earning Retention Ratio                             22.71   21.25     18.5
Cash Earning Retention Ratio                        29.99   27.59    24.77
AdjustedCash Flow Times                                               0.17
Earnings Per Share                                  10.68   10.09    11.47
Book Value                                          12.19   11.84     9.45

Liquidity And Solvency Ratios :

       Current ratio of the company is less than 1 it means company has
shortage of funds for meet the short term obligation. As per the balance
sheet current liability increased as compared to last year figure . It means
Company using long term finance for short term obligation.
       Quick ratio is rigorous measure of a firm ability to service short term
liabilities. Acid test ratio is less than one which is not satisfactory result.

Management Efficiency Ratios:

       Inventory turnover ratio means how fast Inventory is sold. Company
has high inventory ratio but it become lower as compared to the previous
balance sheet due to increase in a competition.
       Debt collection has become lower as compare to previous balance

Profit Margin Ratio:

    This ratio measure how much company earns relative to its sales. A
company with a higher profit margin than its competitor is more efficient.
       Operating profit Measures Company’s pricing strategy and operating
efficiency. Operating profit margin is used to compare company with its
performance. As we can see Hindustan Unilever has not been able to
increase their operating profit. Company’s sales increased but at the same
time company’s total expenditure also increased in same proportion.

Investment Valuation Mar    Mar   Mar
Ratios               '11    '10   '09
Operating Profit
Margin(%)             13.53 15.74 14.46
Net Profit
Margin(%)             11.56 12.29 12.09

        Operating Profit Margin(%)       Net Profit Margin(%)

                                 12.29                12.09

                                 15.74                14.46

       Mar '11             Mar '10              Mar '09

Particulars                   March'11 March'10 March'09
Total Income                  19,944.72 17,913.48 20,679.22
EXPENDITURE                   17,025.42 14,971.42 17,539.33



                                           Total Income
  5,000.00                                 EXPENDITURE

       Return on capital employed for HUL decreased from last year due to
lower profit margin. Return on Net worth ratio states how much profit
company earn in comparison to total amount of shareholder equity on the
balance sheet of the company. as per the P&L company has not a favorable
situation .Its around 30% decrease in return on net worth.

      Successful investors like Warren Buffett always advocate the
importance of investing in stocks for the long term and not just getting in
and out of the stock. But more than investing and holding for a stock for the
long term, it is important to zero down on the right stock. Or you might even
hold a stock for more than ten years and still make very low returns.

Let us take the example of Hindustan Unilever Ltd (HUL), a company which
used to be the largest company as per market capitalization in India, at a
certain point of time. But in the last 10 years the price of the HUL stock
hasn’t gone anywhere. The stock price touched an all time high of Rs
314.123(adjusted for bonus) on February 25, 2000. This price was never
beaten until September 24, 2010, when the stock closed at Rs 314.65. On
November 9,2010, the stock closed at an all time high of Rs 318.9. This price
was again overtaken in early January (January 5,2011) when the stock
closed at an all time high of Rs 325.65. Currently the stock is moving in the
range of Rs 300-310.
So the point is that if you were a long term investor in HUL and had invested
in the stock in Feb 2000, and held on diligently for 11 odd years, you would
still not have made any money on the stock. What HUL tells us is that the
buy and hold strategy may not always work.

      Soaps and detergents has been the main stay of the company over the
years, and still contributes nearly 75% of the revenues. The company has
very little pricing power in this category, given the increased competition
that it has been facing. With a slowdown hitting United States, P&G has
become aggressive in India. Media reports suggest that P&G is looking to
launch its toothpaste brand Crest in India. That should heat up things for
Close Up, HUL’s premier toothpaste brand. The cash rich ITC is gradually
building businesses similar to that of HUL.

Over and above that there are newer players like Ghadi detergent and older
players like Nirma in the lower segment of the market, which have been
giving HUL a huge run for its money. To counter this competition HUL has
had to constantly resort to price cuts to keep the revenues going in this
segment. This is likely to continue in the days to come leading to a very
limited pricing power in its premier business. At the same time it needs to
keep its advertising expenses high in order to generate a high brand
awareness of its products and hope of increasing sales.

During its glory days, HUL’s strategy was to constantly jack up margins.
The management graduates who run the company probably forgot a basic
lesson in economics. When a company makes ‘abnormal profits’, new
competitors enter the arena and drive away margins.

The margins also came from deteriorating the quality of their
products. What did not help was the power brand strategy the company
decided to follow 10 years back, where in the focus was on 30 odd ‘Power
Brands’. The ‘power brand’ strategy prompted HUL to withdraw from a
large number of small markets. This has given an opportunity to many small
players in the market. Some of these brands like Ghadi detergent are now
seriously challenging HUL.

To its credit the company has tried to get into new businesses like selling
water filters (Pureit). But these businesses will still take sometime to grow.
Also the competition in this market has started to heat up with Tatas
announcing their entry with Swach.
What do the analysis say?
HUL declared its results for the quarter ending March 31, 2011. While it
managed to increase sales by around 14% to Rs 5,022.6 crore. But even with
this increase in sales the net profit went down by 2.1% to Rs 569.2
crore. Analysts covering the company came out with reports saying that the
results beat their expectations, which is basically a polite way of saying that
results were not as bad as we expected them to be.

Given these reasons, those investors who are still invested in HUL, its time
they sold out. This stocks is an excellent example of what John Maynard
Keynes, the famous economist, said a long time back, “in the long run we are
all dead”.

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