IGI Logo

We present key points from Hindustan Unilever’s (HUVR) FY23 Annual Report:

* Gaining market share: HUVR now has 19 brands with over INR10b in annual sales (vs. 16 brands last year). In FY23, its growth significantly beat the market, leading to strong market share gains.

* Digital transformation: HUVR is moving from the traditional linear value chain to an ecosystem across consumer, customer, and operations, with the help of data, technology and analytics. About 30% of its digital demand is generated digitally via its future-ready platforms of Shikhar app, e-Commerce, and D2C w ebsites.

* Evolving distribution landscape: HUVR’s B2B app, Shikhar, is now present in 1.2m retail outlets. Its D2C business has grown to 16 brand websites and covers around 9m retail stores. It is also the first FMCG company to participate in the Open Network for Digital Commerce (ONDC), an initiative by the Indian government to democratize e-commerce.

* Royalty agreement: HUVR had a royalty and central services arrangement with Unilever valid for 10 years ended on 31st Jan’23, with 2.65% royalty in FY22. It would rise to 3.45% over a period of three years, but acquisitions by HUVR in the last few years, especially GSKCH brands for which HUVR owns brand rights, mean that royalty was at 2.65% at the end of the tenure.

* Beauty and Personal Care (BPC): HUVR now has five digital-first brands – Simple, Love Beauty & Planet, Baby Dove, Acne Beauty and Find Your Happy Place. It continues to expand its premium portfolio. Its content hub ‘BeBeautiful’, ‘Lakmé’s Virtual Try-ons’, and ‘SmartPick’ are helping consumers to experience products and understand the latest trends.

* Health and Wellbeing: HUVR has forayed into the fast-growing demand segments of ‘Health and Wellbeing’ through strategic partnerships with two young science-backed brands ‘OZiva’ and ‘Wellbeing Nutrition’.

* Health and Beauty segment: HUVR plans to invest in route-to-market and instore execution interventions in pharma and beauty channels. It continues to engage with medical professionals and build advocacy for its brands through an expert channel.

* Home Care: The size of its Home care liquids business has doubled in the last three years to over INR30bn in annual turnover. Surf Excel continues to lead in premiumization and crossed USD1b in annual turnover, becoming the first home and personal care brand in India to achieve this milestone.

* Financial highlights: In FY23, HUVR's revenue grew by 15.5% YoY to INR591.4b, exceeding market growth. The company posted a 4.8% increase in underlying volume. Despite inflationary pressures, EBITDA margin remained strong at 23%. PAT reached INR100.2b, resulting in a 13% YoY increase in EPS to INR42.7 per share. The dividend payout ratio stood at 91%, compared to 90% in FY22. CFO rose by 7.4% to INR96.3b, with a two-year CAGR of 3.7%, and FCF increased by 7% YoY to INR87.7b. HUVR generated ROE of 20% and ROCE of 27% in FY23, up from 18% and 25% in FY22, respectively. The company achieved efficient net working capital days of (-16 days) in FY23

Valuation and view

* HUVR remains confident about its ability to achieve Consistent, Competitive, Profitable, and Responsible (4G) growth while maintaining double-digit EPS growth. The recent increase in royalty and central service fees has not affected its commitment to invest in business growth and its ability to deliver growth in revenue and profit.

* HUVR has consistently reinforced the fundamental factors that have contributed to its success in India. They include (a) embracing technology to gather valuable data and enable informed decision-making, (b) adopting the ‘Winning in Many Indias’ (WiMI) strategy that emphasizes decentralization and tailored approaches, (c) identifying emerging trends and proactively investing in them, (d) reinvesting cost savings into the business, and (e) showcasing exceptional execution capabilities that have resulted in a consistent earnings growth.

* We also believe that HUVR is the best prepared among peers in terms of technology and e-commerce strategy to deal with potentially significant disruptions going forward. HUVR’s performance has been even more impressive in the last 3/5 years, with an EBITDA CAGR of 12.4%/13.4% and a PAT CAGR of 14.1/13.6%.

* With the expectation of a normal monsoon, a gradual recovery in rural areas, and a reduction in commodity costs, HUVR is expected to regain its mid-to-high teens earnings growth trajectory it exhibited for the four years before Covid.

* We maintain our BUY rating on the stock with a TP of INR3,100.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer