Jawa’s new assignment: How to make HUL big

HUL’s performance under Mehta’s leadership has been remarkable. As the accompanying chart shows, the fast-moving consumer goods (FMCG) company’s earnings per share is set to grow 11% on a 10-year compound annual growth rate (CAGR) basis. It is ahead of many FMCG peers. Analysts at Jefferies India said HUL now accounts for a third of Unilever Plc’s market capitalisation, up from less than 10% a decade ago.

Against this backdrop, it helps that Jawa comes with rich experience in Asian consumer markets in a career spanning nearly 35 years. He has served as the chairman of Unilever China and Philippines. During his tenure, revenue in Unilever China grew at a CAGR of 9% over 2017-2021, compared to 5% in the previous five years.

“We are confident that this change will give HUL a better boost than its peers, under Mr Java both countries (China and the Philippines) have not only seen a consumer growth ahead of India, but the transformation for these companies to grow faster have also experienced. said analysts at Nomura Financial Advisory & Securities (India) in a March 13 report. This was due to volume growth, increasing penetration (despite being above the 85% level) and margin expansion.

Note that the change in leadership, which is along expected lines, comes at a time when demand conditions are weak in the domestic market. The recovery in rural demand has been slow and there are concerns about the possibility of 2023 being an El Niño year. For Java, other focus areas include scaling up on recent acquisitions, growing the GlaxoSmithKline consumer healthcare portfolio, and tackling increasing competitive intensity.

Leadership change in FMCG firms is often seen as exciting. Recall that Godrej Consumer Products Ltd shares had rallied 22% in a day after it announced the appointment of Sudhir Sitapati as MD and CEO in May 2021. However, HUL shares have not rallied in the last two trading sessions following the news of Jawa’s appointment. “GCPL was passing through a difficult phase and investors were hopeful that the leadership change would improve the performance. But this is not the case with HUL, which is already in a stronger position than peers,” said an analyst requesting anonymity. As such, the near-term outlook remains subdued. “Our industry The conversation indicates growth of the FMCG market in January – February is broadly similar to the muted trends seen in the previous quarter, especially November-December, with festivals in October, said analysts at Jefferies in a March 12 report. The deceleration was observed after the increase related to He said the FMCG industry witnessed 7-8% price growth in January, with growth decelerating in the mid-single digits and rural continuing to lag urban.

HUL’s year-on-year (YoY) revenue growth will be lower due to lower profit margins from price increases. But despite a year-on-year rise in commodity prices, the crisis on the margin front is likely to ease. Recently, increase in royalty fee payable to Unilever has weighed on investor sentiment as it will impact profitability. Hence, the new CEO’s efforts to enhance margins will be closely watched, especially considering that HUL saw its Ebitda margin expand by around 10 percentage points during FY20-FY22. HUL shares are down 10.5% from their 52-week high seen in December. The stock is trading at 48.5 times FY2012 estimated earnings, Bloomberg data showed, which isn’t exactly cheap.