HUL Case Study

Hindustan Unilever Limited (HUL) Case Study 2021 – Industry, SWOT, Financials & Shareholding

HUL Case Study and analysis 2021: Hindustan Unilever Limited (HUL) is India’s biggest fast-moving consumer goods company. In this article, we will look into the fundamentals of HUL, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of HUL, Michael Porter’s 5 Force Analysis, followed by looking into HUL key financials. We hope you will find the Hindustan Unilever Limited (HUL) case study helpful.

Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice. Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.

About HUL and its Business Model

HUL Case Study - Brands

With a legacy of over 80 years, Hindustan Unilever Limited (HUL) is India’s biggest fast-moving consumer goods company. Actually, the very first product of the company was launched in 1888 named Sunlight Soap. In 1931 Unilever set up its subsidiary in India and in 1956, its subsidiaries consolidated to form Hindustan Leer Limited.

In 2007, the name was renamed Hindustan Unilever Limited. In 2013, the parent company Unilever increased the market stake in HUL to 67% and in 2018, the market cap of HUL passed $50bn.

 HUL primarily has three divisions:

  • Home Care
  • Beauty and Personal Care
  • Food and Refreshment

Hindustan Unilever has a pan India access and it is found that more than 9 out of 10 households in India use a brand of HUL. Currently, the company has 14 brands in 44 different categories including Skin Cleansing, Tea, Deodrants, HFD, etc. Famous Brands like Surf Excel, Rin, Wheel, Vaseline, Pepsodent, Clinic Plus are included in the portfolio of the company.

On April 1, 2020, HUL also acquired leading brands like Horlicks and Boost. The company has 21,000 employees working under it with 31 factories, more than 1150 suppliers, and the products are available at more than 8million outlets in India.

HUL Case Study – Industry Analysis

FMCG sector is the fourth largest sector in India, which has surged from 840 Billion USD in 2017 to 1.1 Trillion USD in FY20 and is expected to grow at 10% a year. Personal Care and Household dominates with 50% of FMCG sales in India. Rapid urbanisation, increasing disposable incomes and better lifestyles have been the main growth drivers for the FMCG sector.

55% of the sales come from the urban segment, however, for the last few years, it has witnessed faster growth in the rural segment as compared to the urban segment. In rural India, the sector grew at 10.6% in the Q3 FY20, majorly due to better agricultural output.

It is expected that the rural FMCG market will rise to USD 220 billion by the end of 2025, at the same time, the market share of the unorganised market is expected to fall rapidly.

Michael Porter’s 5 Force Analysis of HUL

1. Rivalry Amongst Competitors

  • FMCG industry is a very competitive one with many brands available, and new products coming in each quarter make innovation very important. FMCG business is highly dependent on advertisement and companies spent a big percentage on it.
  • The switching costs for the customers are very low in this sector as the product differentiation is moderately low, which intensifies the competition.

2. A Threat by Substitutes

  • Substitute in the FMCG sector is highly dependent on the particular product. For example, it is way easier to find Colgate toothpaste at a local shop than a homemade organic dentifrice. On the other hand, the substitute product for biscuits is rusk which is easily available. Since switching costs are very less, the threat of substitutes is relatively on the higher side.

3. Barriers to Entry

  • Barriers to entry in the FMCG sector are far less as compared to the others. FMCG business is majorly dependent on brand identification and this can be developed with unique qualities, logo, advertisement; basically, proper market strategy.
  • The distribution network is very large and branched in the FMCG sector, which further eases out barriers of entry.

4. Bargaining Power of Suppliers

  • In FMCG business, companies have long term business with the suppliers, which helps them to negotiate the price. Moreover, the number of suppliers is ample; hence, decreasing the bargaining power of suppliers. However, companies need to make sure that they are getting the supplies at the cheapest possible prices as the industry is a high-volume, low-margin business.

5. Bargaining Power of Customers

  • Factors like a high number of similar product companies available, very low switching costs and similar products available at similar quality and in almost the same price range increase the bargaining power of customers. The only thing that can make them stay is brand loyalty for a product.

HUL Case Study – SWOT Analysis

Now, moving forward in our HUL case study, we will perform the SWOT analysis.

1. Strengths

  • HUL has a strong brand equity and a large legacy as it is a very old and well-rooted company with a variety of popular brands and products.
  • The company has its presence across the length and breadth of India with over 8 million+ retail stores where its products are available.

2. Weaknesses

  • HUL runs in a very competitive environment and there are highly established and rising companies that are little product-focused and hence, eat up the market share of the company.
  • HUL currently doesn’t have any ayurvedic or natural products in their portfolio, which is a negative aspect of the company as the current population’s trend is shifting to herbal products and many focused companies are making the best use of it.

3. Opportunities

  • With increasing disposable incomes, education and youth population, the FMCG sector in rural and semi-urban areas is expected to grow very rapidly as compared to urban areas. The company can use this very well as it already has a brand image and a wide chain of distributors.
  • The company can use its healthy cash reserve position and brand image legacy to acquire various products to diversify its portfolio.

4. Threats

  • HUL runs in a highly competitive environment, with 100% FDI allowed by the Govt. of India and new multinational companies setting their feet, the company faces a high threat from its competitors.
  • The company is highly dependent on raw material prices. Inflation can shrink the margins for the company as it runs in a sector that is a high-volume, low-margin one.
  • Population’s shift to organic and healthy products can help some unorganized and small companies to increase their market share, which can be a threat to HUL.

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HUL’s Management

There are 9 members in the board of directors committee of the company, out of which 6 are Independent Directors including one female member.

Mr Sanjiv Mehta has been serving as the Chairman and Managing Director of the company since 2018. Chartered Accountant by degree, Sanjiv Mehta is also the President of Unilever South Asia (Pakistan, Bangladesh, Sri Lanka and Nepal). In 2019, he was awarded the “Business Leader of The Year” award by the All India Management Association.

Mr Willem Uijen is the Executive Director, Supply Chain of Hindustan Unilever Limited. He has been with the company since 1999 and was a part of various demographical projects of the company, especially in Latin America. In January 2020, he joined his current position.

Financial Analysis of HUL

  • 44% of the company’s revenue comes from Beauty and Personal Care, followed by Home Care (34%). Foods & Refreshment contributes 19% and only 3% comes from others.
  • In terms of Operating profit, Beauty and Personal care products contribute the maximum (55%), 29% comes from Home Care, 14% and 3% from Foods and others respectively.
  • The company has a 54% market share in the Skin Care Segment, which makes it the market leader. In Dishwashing Detergents, 55% of the market share is dominated by the company. 47% and 37% is the respective market share which company owns in Shampoo and Personal Care Segment.
  • As of Sept’20, the company spent 9.79% on advertisements as a % of total sales, which has shown a good rise from 7.46 of June’20.
  • Net Profit Margin for the company is 14.77% as of FY20, which has surged from 13.59% as that of FY19. Current NPM is the highest of that in the last 5 financial years and the 3 Yrs. Avg. Net Profit Margin is 14.26%. Source: Trade Brains Portal]

HUL Net Profit Margin

  • In FY20, HUL showed a Revenue Growth of 1.2% from the previous FY. 3-year CAGR is 6.16%, which means that in recent years, the revenue growth has been subdued. A similar trend is visible from Net Profit Growth, 1-year CAGR is 11.46% whereas 3-year CAGR (14.66%) is higher.

hul case study revenue profit and net flow

  • The company has a very healthy and consistent cash flow from Operating Activities. Outflow in cash flow from financing activities surged in FY20 as the company paid a higher dividend than the previous year.

hul case study cashflow statement

HUL Case Study Financial Ratios

1. Profitability Ratios

  • EBITA Margin for the company has been increasing for the last 5 financial years except for FY19, in which it witnessed a small dip from 20.7 to 19.91. As of FY20, EBITDA Margin is 21.54%.
 EBITA MarginRoE
RoCERoA
HUL21.54
84.15114.6735.44
Dabur18.5323.9926.4116.3
Godrej Consumer21.319.7618.0210.71
P&G20.0242.7458.0525.63
  • Hindustan Unilever has the premium RoE of 84.15 (FY20), and a consistent rise in the same has been visible for the last 4 years. The 3 years avg RoE is 79.76%.
  • The company enjoys 3-digit RoCE, which is very well respected by the market and a similar rising trend is visible in RoCE as that of RoE. As of FY20, RoCE is 114.67% and the Avg ROCE for 3 years is 110.16%.

2. Leverage Ratios

  • As of FY20, Quick Ratio and Current Ratio for the company are 1.02 and 1.32 respectively, which indicated its good liquidity position. These levels have been more or less the same for the last 5 financial years, which is a positive sign for the company.
 Quick RatioCurrent RatioInterest Coverage RatioD/E
HUL1.021.3278.690
Dabur1.421.9835.870.08
Godrej Consumer0.681.068.710.45
P&G1.892.2398.840
  • HUL is a 100% debt-free company and its Interest Coverage Ratio is 48.69% as of FY20. Although this level is very good currently, it was 261.73 in FY19.

3. Efficiency Ratios

  • Currently, the asset turnover ratio for the company is 2.4, which is slightly lower than the previous year but this figure has been almost constant in the recent financial years.
  • The inventory turnover ratio witnessed a continuous rise from FY16 (12.04%) to FY19(17.53%), which later dipped to 17.18 in FY20 due to virus outbreak disruptions.
 Asset Turnover RatioInventory Turnover RatioReceivable DaysPayable Days
HUL2.417.1311.8392.86
Dabur1.097.2231.0879.55
Godrej Consumer0.716.0845.12120.91
P&G1.7814.721.1486.09
  • The number of receivable days has decreased (12.79% in FY19 to 11.83% in FY20) and the number of payable days has increased (90.77% in FY19 to 92.86% in FY20), indicating the company’s increased bargaining power over the buyers and suppliers.

Shareholding Pattern of HUL

  1. Promoters own 61.9% of the company as of December quarter 2020. Although it has been the same for the last 3 quarters, a fall was seen from the level of 67.18% in March 2020. The best part is that promoters do not pledge a single share.
  2. FIIs hold 14.92% of shares of the company as of December 2020, which has surged from the level of 12.32% in the same period the previous year.
  3. DIIs own nearly 10.72% shares of the company, which was around 6.68% a year back. Both FIIs and DIIs have increased their shareholding in the previous years.
  4. Public shareholding has witnessed a fall in the recent quarters, from the level of 14.95% in Jun2020 to 12.46% in Dec 2020.

Closing Thoughts

In this article, we tried to perform a quick Hindustan Unilever Limited (HUL) case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about HUL.

What do you think about HUL fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing!

Asian Paints case Study - Fundamentals, Porter & SWOT Analysis cover

Asian Paints Case Study 2021 – Industry, SWOT, Financials & Shareholding

Asian Paints’ Case Study and analysis 2021: Asian Paints is the largest and leading Indian paint company. In this article, we will look into the fundamentals of Asian Paints, focusing on both qualitative and quantitative aspects. Here, we will perform the SWOT Analysis of Asian Paints, Michael Porter’s 5 Force Analysis, followed by looking into Asian Paints’ key financials. We hope you will find the Asian Paints’ case study helpful.

Disclaimer: This article is only for informational purposes and should not be considered any kind of advisory/advice.  Please perform your independent analysis before investing in stocks, or take the help of your investment advisor. The data is collected from Trade Brains Portal.

About Asian Paints and its Business Model

asian paints products

Asian Paints is India’s 1st largest, Asia’s 3rd largest and the world’s 9th largest paint company. It has been setting a high standard of operational efficiency, management, world-class innovation and technological vision for the last 7 years.

The paint industry is divided mainly into two segments viz. Decorative and Industry. The Decorative segment includes household paints (interior wall finishes, exterior wall finishes, enamels and wood finishes) and is undeniably dominated by Asian Paints in India. The Industry segment includes industrial paints, automotive coatings, OEM paints, powder coatings etc., in which Asian Paints comes at 3rd place after Kensai Nerolac and Akzo Nobel.

The decorative segment is less technology-dependent due to which some unorganized players also eat up a small fraction of the market share. However, the industry segment is highly technology-dependent and entirely have organized players.

Asian Paints holds a global presence by operating in 15 different countries and owning 26 paint manufacturing plants across the globe. In India, it has a robust distribution network of suppliers. To improve its margins and operational efficiency, the company chose dealers over distributors.

Currently, the company has 70,000+ shopkeepers across the nation. It has also been enhancing its dealers for the past 40 years. Asian Paints has a phenomenal supply chain as it carries out around 2.5 – 3 lakh deliveries per day and its trucks visit the dealers around 4 times a day.

Asian Paints’ Industry Analysis

The paint industry runs parallel to the GDP and economy. Considered as discretionary spending, as the GDP increases so does the spending capacity of the people. In the past, this industry has seen double-digit growth in terms of both, value and volume, and this is why it has always traded at premium valuations in emerging economies.

For the last two years, there has been a constant rise in the market share by organised players. Currently, the ratio is around 70:30 between organised and unorganised players, and with the technological innovation and proper GST implementation, this market share is expected to rise to 85% in the next couple of years.

The paint industry of India is expected to witness a phenomenal rise in the coming years considering India’s latest per capita consumption (of around 4kg) as compared to that of the world (15kg.) This data provides a vast scope for the paint industry to grow in India.

The paint industry is a raw material intensive industry. Especially in the case of India, most of the raw materials are imported from other countries. With the government imposing import bans and promoting the self-reliant mission, the supply is expected to come from within the country in the coming years, which will be a boon to this industry and it will see a tremendous rise in operational margins.

Michael Porter’s 5 Force Analysis of Asian Paints

1. Rivalry Amongst Competitors

  • The 70% paint industry is dominated by the organized sector which includes 4 companies (Asian Paints, Berger Paints, Kansai Nerolac and Akzo Nobel).  As it is a raw material intensive industry, the distribution network plays an important role; hence a very tough competition is observed among the competitors.

2. A Threat by Substitutes

  • In earlier days, limewash was used as an alternative to paints. However, in the modern era, the trend is entirely getting shifted to paints. Hence, the threat to substitutes is very low.

3. Barriers to Entry

  • The Industry segment is totally governed by technological developments, which limits the entry of unorganized players owing to the high R&D expenditure.
  • Established players have a well-developed and trusted distribution system, which will be very difficult for a new entrant to break.

4. Bargaining Power of Suppliers

  • Paint manufacturing requires more than 300 raw materials, of which the maximum is imported. Titanium oxide, which constitutes 25% of the raw materials, is facing a shortage of supply. 50% of the same is Petro-based products which see high volatility in prices. Hence, the bargaining power of suppliers is very high in the paint industry.

5. Bargaining Power of Customers

  • With almost similar products offered by 4 different companies of an industry, it becomes price-sensitive; hence, customers enjoy high bargaining power.
  • The industry segment attracts technologically enhanced companies with a robust supply chain, which is not offered by many; hence, customers do not possess much bargaining power in this segment.

Asian Paints’ SWOT Analysis

Now, moving forward in our Asian Paints case study, we will perform the SWOT analysis.

1. Strengths

  • Right after setting foot in the paint industry, Asian Paints chose dealers instead of distributors and wholesalers. This decision has turned out to be a boon for the company as the distributors demanded a 20% margin whereas now only 3% margin goes to the suppliers.
  • Technological Development is the sector where Asian Paints have been investing for decades. Asian Paints bought a supercomputer worth 8 crores in 1970, which is ten years before ISRO did it. It collects almost double the data than its competitors and forecasts the trend with more than 97% accuracy.

2. Weaknesses

  • The penetration of Asian Paints in the industry segment is far too low, and it faces stiff competition from already strong Kansai Nerolac and Akzo Nobel.
  • Despite being the 9th largest paint company in the world, the global business of the company is far below average with the exception of Bangladesh, Nepal and UAE.

3. Opportunities

  • Asian Paints states that they aim to enter the list of top 5 paint companies of the world. This could be achieved by focusing on the emerging economies of the world.
  • Considering the market share, Asian Paints has an opportunity to increase its market share in the industry segment as it requires world-class technology which the company can very easily afford.
  • Government policies (like the extension of CLSS), rapid urbanization and easy availability of home loans will increase the demand for paint. With its strong distribution network, innovative products and total home solutions, Asian Paints can be hugely benefitted.

4. Threats

  • With new players like Indigo Paints and already established players, Asian Paints faces stiff competition. In the global market too, the world-class technologically innovative players dominate the market share.
  • As most of the raw materials for manufacturing paint are imported, the company may face operational disruption during circumstances like a pandemic, country tensions, etc.

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Asian Paints’ Management

The visionary founder of Asian Paints, Mr Chamaklal Choksi laid the stone of efficient management in the company. From its incorporation to this date, Asian Paints has been setting standards in management qualities, and this is one of the reasons it has been one of the biggest wealth creators of all time in India.

Being a visionary and understanding the importance and future of technology, Mr Choksi bought a supercomputer worth Rs 8 Crores, back in 1970 before ISRO (after 10 years) and IIT Bombay (after 21 years) did, to collect various data, forecast the sales, efficient changes and customer interest. This custom of pure management is still going on in the company.

The newly appointed MD and CEO Mr Amit Syngle owns just 600 shares of the company (the previous one, Mr KBS Anand owned mere 270 shares). The board of Asian Paints enjoys broad expertise and vast experience.

Financial Analysis of Asian Paints

  • 84% of the company’s revenue comes from the decorative segment. In FY20 company launched various value for money emulsions which helped the company to gain more market share.
  • 2% of the company’s revenue is incurred from the Industrial coating Business. The company is a market leader in auto refinish segment and stands at the second position in the OEM segment.
  • 2% of the total revenue constitutes from the home improvement business. Recently, the company is trying to enter complete home solutions like sanity ware, kitchen and living area under the brands ap royal bathrooms.
  • International Business accounts for 11% of the total revenue generated by the company, and in FY20, the company improved the product value proposition in the key markets like Egypt, Bangladesh, Sri Lanka etc.
  • 42% market share of the Indian Paints Industry is dominated by Asian Paints, which makes it a leader of the industry, followed by Berger Paints (12%), Kansai Nerolac (7%), Akzo Nobel (5%) and Indigo Paints (2%). 33% of the market share is acquired by other small and unorganised players.

paint industry market share india asian paints

  • Asian Paints beats its competitors in profitability with an NPM of 11.66%. [Berger Paints (10.44%) and Kansai Nerolac (8.75%); Source: Trade Brains Portal]
  • Although the company has break-even cash flows, it enjoys healthy operating cashflow with a spike of Rs 495.15 crores from FY19 (Rs 99.92 crore) to FY20 (Rs 595.07 crore).

Asian Paints Case Study - cashflow statement

  • The company has a CFO to PAT (last 5 yrs. average) ratio of 1.03 which is a positive sign for the company’s cash flow position.

Asian Paints’ Financial Ratios

1. Profitability Ratios

  • Asian Paints has EBITA Margin of 17.83%, which is constantly rising from the last few years and it is the highest among its peers. The recent rise from 16.99% in FY 19 to 17.83% in FY20 is mainly due to falling crude prices.
  • Asian Paints has been constantly delivering a massive RoE of above 25% for a lot of years. The current RoE stands at 27.79%.

Asian Paints Case Study ROE

  • For the FY20 the RoCE is standing at a massive 35.83%. However, there has been a decreasing trend in RoCE for the last couple of years mainly due to increased competition, additional CAPEX and investment for future growth.

Asian Paints Case Study

 EBITA MarginRoERoCERoA
Asian Paints17.8327.7935.8316.82
Berger Paint16.6726.0630.4710.99
Kansai Nerolac13.6514.3718.4310.97
Akzo Nobel14.2420.0328.016.66
Shalimar Paints-8.86-13.22-8.53-6.9

2. Leverage Ratios

  • Current Ratio for the FY20 is 1.73% for the company, which has seen continuous improvement for the last couple of years. Current Ratio above 1.33% is considered healthy.

Asian Paints Case Study

  • The Company is almost debt-free with Debt-to-Equity ratio of a mere 0.04. It means the company is funding additional projects from the equity.

Asian Paints Case Study

  • The quick ratio of the company is 0.96 for the latest financial year. Although liquidity has not improved in the last few years, it has maintained a threshold requirement.

Asian Paints Quick Ratio

 Quick RatioCurrent RatioInterest Coverage RatioD/E
Asian Paints0.961.7334.160.04
Berger Paint0.781.4819.950.2
Kansai Nerolac1.612.7132.90.05
Akzo Nobel1.191.6435.750
Shalimar Paints0.510.84-1.830.44

3. Efficiency Ratios

  • Asset turnover Ratio has seen a continuous fall from FY 16(1.83). Currently, the ratio is 1.44%. However, there has been a similar fall for the entire peers of the industry and Asian Paints still has a better figure than the peers.
  • The inventory turnover Ratio for the FY20 is 7.14%, which is the highest among the peers. However, an entire industry has seen a fall in this ratio from the last few years.
  • The number of payable days has decreased from the previous fiscal year (52.73 to 50.51), which shows the supplier’s bargaining power over the company, whereas the receivable days are continuously increasing from the last few years indicating stiff competition.
 Asset Turnover RatioInventory Turnover RatioReceivable DaysPayable Days
Asian Paints1.447.1428.9350.51
Berger Paint1.055.0739.7261.48
Kansai Nerolac1.255.5647.7854.11
Akzo Nobel0.756.5357.6100.6
Shalimar Paints0.694.8381.584.36

Shareholding Pattern of Asian Paints

  1. Promoters hold 52.79% of the company with around 10.67% of pledging. Promoter holding has been constant for the last few quarters and pledging of shares has also reduced from 12.53% in December 2019 to 10.67 % in December 2020. Nevertheless, pledging above 10% is an alarming sign.
  2. A constant increasing trend has been seen in the case of FII holding for the last few quarters with a shareholding of 17.24% in September 2019 to 21.13% in the recent quarter.
  3. DIIs own nearly 7.10% of the company. However, a constant decreasing trend has been seen in the DII shareholding in Asian Paints for the last few quarters.
  4. Public Holding has been more or less the same in Asian Paints of around 19-20%.

Closing Thoughts

In this article, we tried to perform a quick Asian Paints’ case study. Although there are still many other prospects to look into, however, this guide would have given you a basic idea about Asian Paints.

What do you think about Asain Paint fundamentals from the long-term investment point of view? Do let us know in the comment section below. Take care and happy investing.

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