Should You Worry About HUL's Lost Decade Again?

Exactly a decade back, it was HUL's annual analyst meet in May 2014.

An energetic Harish Manwani, then CEO of Hindustan Unilever (HUL) walked into the ballroom at Taj Colaba, with a smile on his face.

Manwani had enough reason for cheer. After a lost decade in the 2000s, HUL had finally got back its mojo.

Over five years until 2014, HUL had grown its topline by 58% and profits by 75%. The company had once again become a proxy for India's consumption led growth.

It was not something that has come easily to the company.

In early 2000s, HUL suffered what was called a lost decade. The company's sales and profits had been flattish for long. Turning that around to a consistent growth trajectory was no mean task.

In May 2013, Unilever had announced a buyback of up to 75% of its shares to increase its stake in its Indian arm, HUL.

This was to focus on product innovation, distribution and bring in nimbleness to take on competition from new age tech enabled FMCG entities.

Over the next decade, HUL focussed on execution.

The strong execution of its Winning in Many Indias strategy meant that growth in select rural geographies was 1.5x of base growth.

The focus on premiumisation, evident in detergents and tea, meant that even in highly penetrated, large categories, growth was meaningful.

The company's rigorous focus on cost savings also resulted in higher operating leverage.

The real differentiator was HUL's distribution network. The company relied on its direct reach to 3 million outlets. The extended distribution network covered another 2.3 million outlets. Shakti Entrepreneurs handled the remainder in rural areas.

Then came the focus on data analytics.

HUL realised that there were reams of data related to trade promotions, media spends and competitive intensity over decades. Yet, it hadn't been put into a system that was accessible to all.

Christened 'Project Livewire', the first three years were spent getting comfortable with the data and running hundreds of tests.

This gave rise to the Shikhar app where today 8 lakh retailers enter orders online. It allows the company to witness a demand slowdown or surge in demand of specific categories.

In the case of sale of Lifebuoy hand sanitisers during the Covid-19 pandemic, the company witnessed the impact of data in real time.

Since late 2019, at Periyapalayam, about an hour's drive from Chennai, HUL has put in place a massive, automated, quick dispatch centre called Samadhan.

Order information is relayed along a conveyor belt, as pickers put in everything from soaps and shampoos to detergents and food products in pre-labelled boxes. These are then sent to a stacking system where they are loaded on to trucks along a pre-determined route.

HUL now has several challenger brands in the direct to customer (D2C) segment to counter new age FMCG brands.

It is also a global push from Unilever, which saw e-commerce skyrocket during the pandemic. So, HUL acquired online-only brands like Dollar Shave Club that helped it learn more about shipping D2C.

Finally came the focus on artificial intelligence (AI).

HUL has AI labs in Mumbai, Bengaluru, and Gurugram where it picks up signals on what consumers are searching for, from trade data as well as search terms on the internet.

AI helped the company counter competition in organic shampoos, a segment dominated by new age Mamaearth.

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But the crucial factor is sustaining margins. HUL has seen operating margins improved from 16% in 2014 to 24% in 2024.

During this period both food and commodity prices were subdued. The reversal in these inflation trends is something that the top management is keenly aware of.

HUL has refrained from price hikes in recent quarters. In some markets, the company has chosen to withdraw from the low unit pack price points. In some others, the grammage was reduced.

HUL's sales and profits have grown at around 10% per annum in the past decade and the company remains confident to retain a double-digit growth. Also, the operating margins can only catch up to that of its peers like Godrej Consumer and P&G (around 26%).

Valuations: HUL Versus Unilever?

The biggest quandary about HUL's valuations emanates from the comparison with parent Unilever.

HUL currently commands a multiple of around 50 times earnings. This is lower than the 10-year average multiple of 62 times.

However, the stock of parent Unilever Plc trades at around 20 times.

The wide gap in earnings is attributed to higher growth prospects of the domestic entity. However, I believe it is the innovation in product development, supply chain and distribution, with the help of technologies like AI, which will help HUL stay ahead of competition.

Moreover, investors should take note of the fact that when bought at an attractive valuations, the stock of HUL has sufficient capacity to deliver handsome returns over long term.

For instance, despite a lost decade, the stock of HUL delivered a compounded return of 12.7% between 2000 and 2024.

There is no doubt that the odds are stacked against HUL in the next decade if inflation eats into its margins.

However, buying the stock when in distress could be the best way to profit.

Warm regards,


Tanushree Banerjee
Editor, StockSelect
Equitymaster Agora Research Private Limited (Research Analyst)