Hindustan Unilever (HUL)

gsapte · September 14, 2024, 3:21pm

As per the news article in Business Standard, following is the scenario:

The ice-cream brands under HUL, including Kwality Wall’s, Cornetto, and Magnum, account for about 3 per cent of the company’s annual sales, which exceed Rs 60,000 crore.

(HUL) decision to form a committee of independent directors to assess the future of its ice-cream business has sparked high interest among major companies, with speculation rising that the consumer goods giant may eventually sell the division, reported The Economic Times citing industry insiders.

Companies like RJ Corp, which operates KFC and Pizza Hut chains and handles bottling for PepsiCo, the MMG Group, which runs McDonald’s in North and East India and is a Coca-Cola franchise bottler, as well as the local unit of Nestle SA, are closely watching HUL’s move. These companies are expected to evaluate a potential acquisition of the ice-cream business, depending on the committee’s decision, sources said.

On Friday, HUL announced the formation of the independent committee to explore “potential structures and alternatives for the restructuring” of its ice-cream business, signalling the possibility of a strategic exit.

“These suitors have clear synergies with the ice-cream business, and any deal will likely revolve around the business’s valuation,” an industry executive told The Economic Times.

keeyes · January 22, 2025, 11:28am

During their quarterly results announcement, HUL revealed plans to demerge their ice cream business into a separate entity. Existing HUL shareholders will receive shares in the new spin-off at a ratio of 1:1.

While there is a surge in quarterly profit, it is mainly attributed to one time exceptional gains through sale of Pureit business.

rkirana · March 15, 2025, 9:58am

Looks like lot of high P/E companies are being de-rated in this cycle and HUL P/E is now 50 versus the 65 it used to be.
HUL is not able to grow sales in double digits also with a poor sales growth of 9.5%. It is now trading lower than Mar 2020 lows

Could it go back to the 25 p/E levels it used to trade? Looks like the giants with no growth are biting dust

Investor_No_1 · March 16, 2025, 4:39am

when and for how long HUL used to trade at 25 or less than 40-50 PE?

imurlovish · March 16, 2025, 5:38am

Expecting P/E levels from before 2011? Come on, don’t be that bearish in this market!

gsapte · March 16, 2025, 7:04am

As per my observations of Stock Market since 2004 on wards, in pessimistic market conditions, Tier 1 Companies also trade at Low or Reasonable Valuations. Investors start thinking as if these Market Leaders are now loosing market share, loosing competitive moats, Will grow below 8% or 10% for longer time-frame. This is natural, as humans have tendency to be very pessimistic during such times.

When Market recovers, then some of these negative feelings dis appear and Positive factors about these market leaders start emerging. Also, Reversion to Mean starts happening and such beaten down market leaders start trading close to their Mean Valuations.

I have seen this happening multiple times during last 20 years or so.

If we apply these observations to HUL, there is a possibility that, Management may overcome current challenges and might find ways to improve its Sales growth. Market Leaders often have capable managements which are smart enough to turn around the things.

We have to wait and see whether this happens in case of HUL or not. Patience will be tested in this current scenario of low demand.

Above observations are based on Stock Prices of TCS, HDFC (Before it was merged with HDFC Bank), and many such Market Leaders. Also, we have to keep in mind that, Mr. Market generally gives importance to 5 Year or 10 Year Median P/E and Expecting very old Median P/E in near future may or may not always materialize!! Also, Mr. Market gives importance to ROE and ROCE apart from EPS growth while arriving at valuations.

sambandham82 · March 17, 2025, 3:25pm

Between 2011 and 2017, mostly HUL was trading around 40PE.
Between 2017 and 2022, mostly 70PE.
But before 2011, mostly 25 PE.
Going forward, this stock with 10% EPS growth and 2% dividend yield does not deserve anything above 35PE in the following decades.

ranvir · May 3, 2025, 6:16am

Two factors that can help HUL grow at faster rates and sustain premium valuations for some more time are -

(a) If they keep acquiring popular digital first / other smaller brands / companies in order to keep their growth engine running. Ex - recent acquisition of Beauty and Skincare brand - Minimalist. Its a popular brand with a current topline of Rs 500 cr and growing fast

(b) As the liquidity cycle keeps easing, they may see some uptick is consumer demand ( although - its more a matter of hope vs anything else )

gsapte · May 5, 2025, 1:42pm

I would tend to believe that, it is sometimes difficult to value a stock as the context of valuation is also an important factor.

If we look back to the high GDP growth era between 2003 to 2010, Mostly Engineering & Capital Goods were fetching premium valuations.

During 2012 to 2018, Banks and NBFC(s) with Low NPA were trading at high P/B ratios.

During COVID, Health care sector stocks and Path lab stocks were trading at higher valuations.

Now there are tariff related uncertainties which may lead to low GDP growth, marginally higher inflation in developed nations and Geo-political tensions in and around certain parts of the world. In next few years, Investors to some extent might like to park their funds in safe stocks such as FMCG. It may lead to some expansion of their P/E multiples which we might have witnessed in the past as well.

Defense sector seems to be overheated now with astronomical P/E valuations in some pockets hoping for Geo-political tensions to continue. Very few investors predicted that defense stocks will trade at such high valuations during 2020-21, but now it has happened.

In such dynamic times, it could be difficult to predict the Valuation zone for FMCG stocks. May be, things will evolve over next few quarters. Expecting FMCG stocks to trade at much lower valuations seems to be far fetched to me as of now.

Again, I might be proven wrong in my high level analysis and we may need to look at specific companies, their growth plans, margins, strategies to beat competition from small players and various such parameters.

I would tend to repeat that, when you will see lot of Negative Noise about certain stock but fundamentals are more or less intact, mostly it is time to BUY and When every one is too optimistic about certain stock, it is mostly time to be cautious. Let us see whether HUL falls in the first bucket or not. We have to wait and watch. (ITC was in the First bucket during 2020-21 and an investor might have gained even 150% in a Large cap stock like ITC if he/she would have had the courage to buy it at 160 and then sell at 500 levels. COAL INDIA zoomed from 160 to 545 between 2022 to 2024 as well which was also in the First Bucket).

nav_1996 · May 6, 2025, 1:14am

But why should we value an asset based on flows. This may be true of assets like Gold and Oil. But a stable FMCG company like HUL can be valued based on DCF with reasonable assumptions. HUL and Nestle appears to be more than fully valued.

Theoretically, marginally higher inflation may lead to slightly better nominal revenue and profit numbers. But then we are also looking at higher interest rates, that should depress assigned valuation as cost of equity goes up.

hardik_shah1 · May 6, 2025, 1:50am

Its not the valuations that are concern but actual pathways for future growth. During 2010-2020 when FMCG margins and growth was good, the stock gave good returns and PE peaked. HUL was HUL because its edge was distribution build over last 70-80 years. They had least trade margins in the industry which could be ploughed back into product development, branding and better bottom line.

Here is the concern, on the product side competition across the board including their tungsten-proof soaps, detergents and Washing powders business. Ariel never had competition per-se in the period 2010-2020. Now you have across from Wipro and Godrej attacking with lower price points on washing liquids at similar quality of product. You have D2C and others attacking on top end with better products esp on soaps.

Same on foods, BPC and all sides where both original competitors and D2C brands have discovered their mojo. So product and is being attacked.

The second moat of distribution is absolutely hammered with emergence of Qcom and E-com. It took a decade but moat is now a small edge of water that can be easily crossed. Any D2C or niche regional brand can go national without need of warehouses, a Salesforce, or building distributors in every nook of the country.

This is what is leading to slow growth for the company. So Peak margins and peak PE may just be a thing of the past. It was an artifact of a different era.

Just my thoughts. I do not own any FMCG company currently.

Investor_No_1 · May 6, 2025, 7:29am

Agree your points…few things as a long term investor…decade is a small time in the history of many FMCG companies across the world. Yes, it took decade to dilute moat of distribution of these FMCG companies, but interestings what they did -

Some of them used QC and Ecom to their advantage as well by targeting growth in this segment for their traditional products
Some launched new exclusive product lines for this segment.
Some acquired companies like D2C to expand their portfolio inorganically.

So, all major FMCG companies are working over last 5 years or so to use this new distribution and product segment to their advantage.

Infact, the damage has been more to retail companies rather than FMCG by QC/ECOM.

Lastly, as QC and ECOM would get pressurized to move towards profitability, they would squeeze the D2C brands for margins and this distribution channel would become costlier for FMCG compared to what they have built over centuries and building even now - the direct distribution.

A decade from now, we do not even know which QC company would survive, but we do know that each of these FMCG companies would grow in strength based on how they have tackled changes in distribution, demand and supply over multi-decades, pandemic, wars, D2C, emergency of Big bazars, ECOM, QC, modern retail and what not.

However, one must always remember the history never repeats itself although it may rhyme. (Quote is borrowed from somewhere origin I do not remember)

Disc: Invested in multiple FMCG companies hence highly biased. Not a buy/sell recommendation. Post only for learning purposes. I can be wrong in all my assessments. Not eligible for any advice.