The Rs 35,218 crore-FMCG behemoth, Hindustan Unilever, is on a high. Not only has the company's average market capitalisation seen a close to 50 per cent jump in the past year (from Rs 2,10,631 crore during the October 2016-September 2017 period to Rs 3,15,599 crore in the October 2017-September 2018), it has made it to the top five of India's most valuable companies (in terms of market cap) after a span of 14 years.
After dipping to an all-time low of No. 20 (most valuable company) in 2011, HUL's market cap had been wavering between the 12th and 13th slots of the "Business Today Most Valuable Companies" list for quite some time. It made it to the top 10 in 2016 and jumped to No. 9 last year. The FMCG major has seen the biggest jump in rank among the Top 10, moving up four places.
HUL has been showing double-digit volume growth for the past several quarters. Its earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins have shot up from 15 per cent in fiscal 2012 to 21 per cent in fiscal 2018. The company's stock price has shot up from Rs 619.30 (October 1, 2013) to Rs 1,584 (October 22, 2018).
GST has been a boon for most organised FMCG players, whose stock prices have sky-rocketed. Not only has competition from the unorganised sectors fallen, the FMCG companies have benefitted from input credit and reduction in number of warehouses, and the lower cost of doing business. HUL is no exception. "GST brings out a level playing field.... What we did first was pass on the whole benefit of GST to consumers.
It was important that when the government reduced the price with lower GST, the benefit was passed on to consumers. (For) GST 2.0, which is the November 15 price reduction, we got a few days' notice to bring down prices. Wherever it took us longer to get the new artwork, cylinder, packaging material?, and we sold at a higher price with a lower GST, we unilaterally offered the money to the government. We have offered Rs 160 crore to the government," says, Sanjiv Mehta, Chairman and MD, HUL.
Mehta is known for transforming business with his out-of-the-box thinking. He had given a new lease of life to Unilever's struggling businesses in Bangladesh. When he took over the Indian operations in 2013, it wasn't a sinking ship but Unilever India had lost its shine. With the overall economic situation becoming tough, the company's volume growth was tumbling. To add to it was its inability to respond to competition from new entrants such as Patanjali, which was eating into its share in several categories.
Mehta had to act fast to reinvent HUL. He felt the one-size-fits-all strategy that HUL had been following in India for over a century, had to go. "India is not a homogenous country?. The category penetration is different and the competitive context is different. So, we needed to have strategies that are for many Indias," says Mehta. In 2014 he launched an initiative called Winning In Many Indias (Wimi), wherein he divided the country into 14 clusters and devolved a lot of authority to each of the clusters. The company started launching product variants to suit that particular cluster. For instance, a variant of Rin detergent that consumed less water was launched for water deficient states in the west and south. Karnataka got its own variant of Bru instant coffee, Bru Kannadiga.
The Wimi strategy did enable the FMCG behemoth to cater to local needs of consumers, but Mehta also recognised the challenge that smaller entrepreneurs posed for the company. They were nimble and understood the needs of the customers of their region better and were able to offer better solutions. "We needed speed, agility and foresight to look at innovations, disruptions and capabilities and, of course, talent for the future," says Mehta. In 2015, the company set up 15 category business teams (laundry, skin care, oral care, ayurveda, and others) led by young general managers. This has led to the company's innovation pipeline increasing manifold. The roll-out of Lever Ayush, for instance, was done in nine months. Mehta says this would not have been possible earlier.
HUL, says Mehta, has close to 30 experiments going on in the tech, robotics and analytics space, which could redefine the way they create value in the company. Mehta says the data and technology revolution is the fourth industrial revolution, and he has already started making considerable investments in that space. With this thought in mind he started imagining how technology and data could even help a kirana store owner. This led to the birth of Humara Stores in Delhi where the company is trying to technologically empower kirana store owners. The company has also launched Shikhar App, through which traders can place orders online.
HUL's market cap between 2013 and 2018 has gone up by over 150 per cent. Analysts feel the growth is not only due to Mehta's transformation policies but also market conditions. "Demonetisation and GST have done wonders for FMCG and retail companies. They are getting back the entire input cost, unlike earlier when they used to get a percentage of it. Also, the second round of GST reduction has helped them immensely," says veteran stock broker, Alok Kejriwal.
In fact, the optimism for companies such as HUL may continue in the stock market despite the uncertain phase, says Abneesh Roy, Vice-President of Institutional Equities at Edelweiss. "HUL is not a company that sells discretionary products, and a lot of its revenue comes from rural consumers. Rural consumption is not impacted by stock markets. FMCG companies at large will do better both in terms of demand and stocks."