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Thursday, November 26, 2020

Hindustan Unilever Limited: Why is it a dream company?

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How does a company reach the zenith of success? How does a company make its brand name so popular that every single household knows about it? How does it shapes itself into a brand of everyday need and associates it with everyone’s daily life? Well, all this can be learned by one of the major Fast Moving Consumer Goods (FMCG) company- Hindustan Unilever Limited, commonly abbreviated as HUL.

History of HUL

Incorporated in 1931 as Hindustan Vanaspati Manufacturing Company in 1931, HUL then manufactured vanaspati ( local name for hydrogenated oil) under the brand name “Dalda”. Interestingly, Dalda is also the longest running brand in India.

Soon, in 1956, the company decided to change its name to “Hindustan Lever Limited” on account of a merger among Hindustan Vanaspati Mfg. Co. Ltd., Lever Brothers, and United Traders Ltd.

Later, in June 2007, Hindustan Lever Limited was renamed Hindustan Unilever Limited.

Current scenario

At present the share of Hindustan Unilever Limited is being traded at Rs. 2094.65 per share.

HUL majorly provides its services in three main segments which are- Beauty and Personal care, Food and Refreshments, and Home Care. It is a market pioneer with having products in more than 20.

Initially it started with manufacturing soaps and then further widened into several other aspects such as shampoo, tea, food, detergent, water purification as well as personal care products.

HUL has established its standing in the Indian market in such a strong way that two out of three consumer products sold in India belong to HUL.

Products offered by Hindustan Unilever:

Cosmetics: Vaseline, Glow and lovely, Denim (Shaving products)

Lakme

Food: Annapurna Atta, Kissan (Ketchup, Jam and Squashes), Bru coffee, Knorr soup, Kwality Wall’s frozen Dessert, Brooke Bond Tea (Red Label, yellow label, green label, Taj Mahal, Taaza, Lipton), Magnum Ice cream.

Soaps: Lux, Pond’s, Pears, Liril, Lifebuoy, Rexona, Dove, Breeze

Haircare: Sunsilk, Tresemme, Dove, Clinic plus

Handwash and Bodywash: Lux, Dove, Lifebuoy, Axe (Soaps, Bodywash, and Deodorants), Pond’s

Home Care: Surf, Wheel, Cif, Vim, Rin, Domex, comfort

Oral Care:  Pepsodent, Closeup

Miscellaneous: Pureit, ayurvedic products under the name Lever Ayush

How does HUL earn its revenue?

Hindustan Unilever earns as much as 49% of its total revenue from soaps and detergents alone, followed by the Personal care and cosmetics segment which contributes 29% to the top line of the company. Next in the line is the beverages segment which gives it 12% of its total revenues and includes sauce, tea, coffee, and jams.

Consumption of such products is growing at a faster rate in rural India in comparison to the urban India and the company has very well developed a strong distribution and network connections in to cater to the needs of potential buyers in the rural areas which make its growth prospects limitless.

All this makes it a company to achieve phenomenal results every quarter, without much surprise or shock.

What benefits does a shareholder get?

  1. Basic Earnings Per Share refers to the quantum of profit a company is making on per share basis, in other words, how much money will each share of the company receive if all the profits earned during the year were to be distributed among its shareholders. HUL’s Basic EPS currently stands Rs. 31.13 as against Rs. 27.89 in 2019. HUL’s currently holds a market value of Rs 5.14 trillion which is more than the combined Rs 4.20 trillion market capitalisation of India’s top 10 listed automobile companies. However, with such an extravagant there is a little room for it to grow further unless a new business opportunity is visible which can be profitable in the future. To conquer this, the company has chalked out some good diversification and expansion plans to compete with rivals in organic and ayurvedic category of products.
  2. Another measure is the cash EPS awarded by the company. Cash EPS is a measure that looks at how much cash flow the company has generated during the financial year under study and includes not only includes Cash received by the business for the products sold or services provided but also includes any upfront payments, such as cash advance received by the business. HUL’s Cash EPS stands at Rs. 35.54 in 2020 as against Rs. 30.37 in 2019.

Another thing to note here is that HUL’s Cash EPS is greater than its basic EPS. This simply means that because of the trust the conglomerate enjoys, it receives a lot of cash in advance before delivering its products to its customers.

  1. The company’s revenue from operations ratio has seen a slight decline owing to the production restrictions posed by the coronavirus pandemic. RFO per share has dropped from 179.96 in 2019 to 179.56 in 2020. The RFO/share shows us how much revenue a company is generating from its core business activities on a per share basis.
  2. Net Profit margin is the key ratio used to compare two or more companies working in the same sector on the basis of their profitability. It measures how much percentage of total sales remains with the company as profit after all the expenses are paid. HUL’s Net Profit Margins have been constantly healthy and stable for the last few years. The Net Profit/Share has jumped up to Rs. 31.19 in 2020 from Rs. 27.94 recorded in the year 2019.
  3. Debt to equity ratio of a company tells us the quantum of the total financing of the company that comes from creditors and investors. Higher debt to equity ratio is not a good sign as it indicates that the majority part of the company is financed by loans and other debt for say, debentures, and bonds. As a remarkable milestone to its performance, HUL has maintained a debt-free balance sheet, this means that it has no debt on its books.

Conclusively, Hindustan Unilever Limited is a strong competition in today’s market and is here to stay. It has created a high-quality bar in terms of services, distribution, and quality. The Strong market standing and brand recognition can merely be proved by the fact that some of the brands are synonymous with the product itself. For example, for a lot of people Surf is (one of the brands of the company) is synonymously used as detergent.

 

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