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Hindustan Unilever Limited Hindustan Unilever Limited Document Transcript

  • 2010HINDUSTAN UNILEVER LTDREPORT ON HULSubmitted by:Anjan Chakrabarty (191072)Anshul Kaul (191077)Khem Singh (191090)Shrey Gupta (191114)Jasbir Singh (191088)Hemanth Kumar (191101)Submitted to:Prof. Vandana Gupta<br />ACKNOWLEDGEMENT<br />We take this opportunity with much pleasure to thank all the people who have helped us through the course of our journey towards producing this report. Behind every fruitful endeavor lie the advice, guidance and inspiration of all the people directly or indirectly involved with the report. We wish to express our gratitude to all the people involved in the completion of this report. <br />We are thankful to all of them for their help and encouragement throughout the completion of the term paper. They have been a constant source of support for us.<br />At the onset, we would like to thank our institute “FORE School Of Management” for giving us the opportunity to undergo this project. <br />First of all we wish to express our deep sense of gratitude to Prof .Vandana Gupta, instructor for Management Accounts, for making us aware of the importance of financial analysis of an organization and providing her guidance and support throughout the project.<br />We will also like to thank our batch mates, for taking out their precious time to answer some questions and providing an insight into the different facets of negotiation in an organization and also for their full support in making the project enriching and informative.<br />Their constructive criticism of the approach to the problem and the result obtained during the course of this work has helped us to a great extent in bringing work to its present shape.<br />INDEX<br />1.Company background 32.Operating Performance 173.Financial Performance 324.SWOT analysis 69<br />Company Background<br />Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company; its journey began 75 years ago, in 1933, when the company was first incorporated. In 1931, HUL set up its first Indian subsidiary, Hindustan Vanaspati Manufacturing Company, followed by Lever Brothers India Limited in the year 1933 and United Traders Limited in 1935. These three companies merged to form Hindustan Unilever Limited in November 1956.<br />In the year 1958 the company was started its Research Unit at Mumbai Factory namely The Hindustan Unilever Research Centre (HLRC). HUL meets every day needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life.<br />The notable thing in company's history is the company became the first foreign subsidiary in India to offer equity to the Indian public. The company also partaking in sell abroad, the export business gives a sustain growth to the company in every agenda. The company's Formal Exports Department was started in the year 1962 and HUL recognized by Government of India as Star Trading House in Exports in 1992. A turning point to the company was guaranteed in the year 1993, HUL's largest competitor, Tata Oil Mills Company (TOMCO), merges with the company with effect from April 1, 1993, the biggest such in Indian industry till that time. Merger ultimately accomplished in December 1994. HUL forms Nepal Lever Limited in 1994, HUL and US-based Kimberley-Clark Corporation form 50:50 joint venture as Kimberley-Clark Lever Ltd to market Huggies diapers and Kotex feminine care products. Factory was set up at Pune in 1995. HUL acquired Kwality and Milk food 100% brand names and distribution assets accordingly HUL introduced Wall's. The company and Indian cosmetics major, Lakme Ltd came to joint ventures and formed Lakme Lever Ltd and HUL recognized as Super Star Trading House in1995. <br />In 1997 Unilever sets up International Research Laboratory in Bangalore and the new Regional Innovation Centres also came up to existence. A group company, Pond's India Ltd was merged with HUL on January of the year 1998. HUL believes that an organization’s worth is also in the service it renders to the community. HUL is focusing on health & hygiene education, women empowerment, and water management. It is also involved in education and rehabilitation of special or underprivileged children, care for the destitute and HIV-positive, and rural development. In 2001, the company embarked on an ambitious program, Shakti. Through Shakti, HUL is creating micro-enterprise opportunities for rural women, thereby improving their livelihood and the standard of living in rural communities. The company's spotlight was turned on to Ayurvedic health & beauty, HUL entered Ayurvedic health & beauty centre category with the Ayush range and Ayush Therapy Centres 2002.  <br />During the year 2003 the company launched Hindustan Lever Network, a strong initiative by the company worth of Rs.1800 crore for Direct Selling Channel. The company acquired Marine business from the Amalgam group companies on March of the same year. In line with company's business strategy to exit non-core business, the Company has disposed its Mushroom business, which formed part of KICM (Madras) Ltd and its Seeds Business also in the year 2004. <br />As of December 2005, Lever India Exports Ltd, Lipton India Exports Ltd, Merry weather Food Products Ltd, Toc Disinfectants Ltd and International Fisheries Ltd was merged with the company, both the five companies are wholly owned subsidiaries of the company and Vasishti Detergents Ltd (VDL) came in to fold of the company as a result of amalgamation of the Tata Oil Mills Company Ltd, VDL was merged with the company in February, 2006. Modern Foods Industries (India) Ltd and Modern Foods & Nutrition Industries Ltd was merged with itself as of September 30, 2006. In March 2007 "Sangam Direct" a non-store home delivery retail business, operated by Unilever India Exports Limited (UIEL), a fully owned subsidiary was transferred to Wadhavan Foods Retail Pvt. Ltd (WFRPL) on a slump sale business and also in same month of the same year the company had carried out Demerger of its operational facilities in Shamnagar, Jamnagar and Janmam lands into three independent and separate companies, being 100% subsidiaries of the company known as Shamnagar Estates Pvt. Limited, Jamnagar Properties Pvt. Limited and Hindustan Kwality Walls Foods Pvt. Limited. In June 2007, The Company has changed its name from Hindustan Lever Ltd (HLL) to Hindustan Unilever Ltd (HUL).  <br />Hindustan Unilever has been consistently recognized within India and globally by eminent organizations and the government for its achievements in various fields. The organization has been recognized among others by TERI, Far East Economic Review, Asian Wall Street Journal and Business world. More recently, Hewitt Associates ranked Hindustan Unilever among the top four companies globally in the list of Global Top Companies for Leaders. The Company was ranked number one in the Asia-Pacific region and in India.    During 2008, Unilever announced its collaboration with the Indian Dental Association (IDA) in conjunction with World Dental Federation (FDI) through its Pepsodent, leading oral care brand to help improve the oral health and hygiene standards in India. The Demerger and transfer of certain immoveable properties of Hindustan Unilever Limited to Brooke Bond Real Estates Private Limited was an event of the company on April 2008.   HUL has more than 670 live patents and 700 million consumers use HUL brands in India as part of their daily lives. The company moves with the mission of "add vitality to life" through its presence in over 20 distinct categories in Home & Personal Care Products and Foods & Beverages. HUL identified five key platforms and have articulated goals, both short term and long term goals, stretching to 2015, would work in areas of health & nutrition & women empowerment on the social front, the economic agenda would be to enhance livelihoods and the environmental agenda would focus on water conservation and cutting green house gases.<br />In 2007, Hindustan Unilever was rated as the most respected company in India for the past 25 years by Business world, one of India’s leading business magazines. The rating was based on a compilation of the magazine’s annual survey of India’s Most Reputed Companies over the past 25 years. HUL is the market leader in Indian consumer products with presence in over 20 consumer categories such as soaps, tea, detergents and shampoos amongst others with over 700 million Indian consumers using its products. It has over 35 brands. Sixteen of HUL’s brands featured in the ACNielsen Brand Equity list of 100 Most Trusted Brands Annual Survey (2008). According to Brand Equity, HUL has the largest number of brands in the Most Trusted Brands List. It’s a company that has consistently had the largest number of brands in the Top 50 and in the Top 10 (with 4 brands).<br />Hindustan Unilever's distribution covers over 1 million retails outlets across India directly and its products are available in over 6.3 million outlets in India, i.e., nearly 80% of the retail outlets in India. It has 39 factories in the country. Two out of three Indians use the company’s products and HUL products have the largest consumer reach being available in over 80 per cent of consumer homes across India. HUL was one of the eight Indian companies to be featured on the Forbes list of World’s Most Reputed companies in 2007.<br />HUL has produced many business leaders for corporate India; one of these, Manvinder Singh Banga, has become a member of Unilever's Executive (UEx). HUL's leadership-building potential was recognized when it was ranked 4th in the Hewitt Global Leadership Survey 2007 with only GE, P&G and Nokia ranking ahead of HUL in the ability to produce leaders with such regularity.<br />Hindustan Unilever Limited (HUL) is India's largest fast moving consumer goods company, and estimates that two out of three Indians use its products. It has over 42 factories across India.<br />HUL is also one of the country's largest exporters; it has been recognised as a Golden Super Star Trading House by the Government of India.<br />The Hindustan Unilever Research Centre (HURC) was set up in 1967 in Mumbai, and Unilever Research India in Bangalore in 1997. Staff at these centres developed many innovations in products and manufacturing processes. In 2006, the company's research facilities were brought together at a single site in Bangalore.<br />HUL also renders services to the community, focusing on health & hygiene education, empowerment of women, and water management. It is also involved in education and rehabilitation of underprivileged children, care for the destitute and HIV-positive, and rural development. HUL has also responded to national calamities, for instance with relief and rehabilitation after the 2004 tsunami caused devastation in South India.<br />In 2001, the company embarked on a programme called Shakti, through which it creates micro-enterprises for rural women. Shakti also includes health and hygiene education through the Shakti Vani Programme, which now covers 15 states in India with over 45,000 women entrepreneurs in 135,000 villages. By the end of 2010, Shakti aims to have 100,000 Shakti entrepreneurs covering 500,000 villages, touching the lives of over 600 million people. HUL is also running a rural health programme, Lifebuoy Swasthya Chetana. The programme endeavours to induce adoption of hygienic practices among rural Indians and aims to bring down the incidence of diarrhoea. So far it has reached 120 million people in over 50,000 villages.<br />The mission that inspires HUL's more than 15,000 employees, including over 1,400 managers, is to help people feel good, look good and get more out of life with brands and services that are good for them and good for others.  It is a mission HUL shares with its parent company, Unilever, which holds about 52 % of the equity.<br /> Incorporation Year  1933  Chairman   Harish Manwani  Managing Director      Company Secretary  Dev Bajpai  Auditor  Lovelock & Lewes  Registered Office  Hindustan Lever House,  165/166 Backbay Reclamation,  Mumbai,  400020,  Maharashtra Telephone  91-022-39830000  Fax  91-022-22871970  E-mail  lever.care@unilever.com Website  http://www.hul.co.in Face Value (Rs)  1  BSE Code  500696  BSE Group  A  NSE Code  HINDUNILVR  Bloomberg  HUVR IN  Reuters  HLL.BO ISIN Demat  INE030A01027  Market Lot  1  Listing   Mumbai,NSE Financial Year End  3  Book Closure Month  Jul  AGM Month  Jul  Registrar's Name & Address   Karvy Computershare Pvt Ltd,   Plot No 17-24,   Vittal Rao Nagar,   Madhapur,   Hyderabad-500081.  91-040-44655000  91-040-23420814<br />MAIN PRODUCT LINE<br />Hindustan Unilever Limited (HUL) is India's largest fast moving consumer goods company, touching the lives of two out of three Indians with over 20 distinct categories in home & personal care products and food & beverages. They endow the company with a scale of combined volumes of about 4 million tonnes and sales of over Rs. 13,000 crores.<br />HUL has a diverse portfolio of brands offering home care solutions for millions of consumers across India.<br />The various segments where HUL has strong presence are as follows:<br />Food brands<br />Home care brands<br />Personal care brands<br />Water<br />Nutrition<br />Health, hygiene & beauty<br />A brief study of the various product lines is done in the following section.<br />Food brands:<br />HUL is one of India’s leading food companies and their products are the leaders in their respective fields. Some of the food brands are as follows:<br /> Brooke Bond 3 Roses Playful banter, a little mischief, serious conversation… there’s no time for young couples like the time spent sharing a cup of 3 Roses.’<br />Annapurna Partnering with the mom in nurturing her dreams, Annapurna Atta is aimed at helping her provide wholesome tasty nutrition to her family. <br /> Red Label India’s favourite cup of tea, the great taste of Red Label brings people closer together and strengthens relationships.<br /> Brooke Bond Taaza Brooke Bond Taaza lifts me and unshackles my mind, allowing me to see and realize possibilities.<br /> Taj Mahal Brooke Bond Taj Mahal is an exclusive selection of teas for the discerning consumer.<br /> Bru Ek cup Bru aur mood ban jae…<br /> Kissan With Kissan, good food is loved not shoved!<br /> Knorr helps families make meal times special, nutritious, tasty and healthy.<br /> Kwality Wall’s A good honest scoop of daily pleasure.<br /> Lipton has a range of vitality teas that truly encompass the goodness of tea.<br />Home care brands:<br />HUL has a diverse portfolio of brands offering home care solutions for millions of consumers across India.<br /> Active Wheel aims at giving freedom from painful & tiring laundry<br /> Cif targets being the best cleaner to let the utensils shine.<br /> Comfort Is the world’s largest fabric conditioner brand.<br /> Domex Introduced as a strong toilet cleaner that eradicates all the germs.<br /> Rin aims at providing the best whiteness’ which can be demonstrable.<br />Sunlight is a color care brand<br /> Surf Excel The washing powder brand.<br /> Vim Created in 1885, the Vim brand is placed as a domestic appliances cleaning brand.<br />Personal care brands:<br />HUL’s personal care brands, including Axe, Dove, Lux, Pond's, Rexona and Sunsilk, are recognised and known by consumers across India. They are aimed at helping to look good.<br /> Aviance provides women with customized beauty solutions.<br /> Axe is a leading deodorant brand.<br /> LEVER Ayush Therapy provides customized ayurvedic solutions.<br /> Breeze beauty soap targeted towards the lower end of the market.<br /> Clear New Clear is a hair washing shampoo.<br /> Clinic Plus is India’s largest selling shampoo.<br /> Closeup The dental care product.<br /> Dove is premium beauty soap.<br /> Fair & Lovely Built more than 30 years ago, World’s No.1 Fairness cream.<br /> Hamam Holistic skin care experiences perfected over the ages to deliver healthy, beautiful skin.<br /> Lakme is an ally to the Indian Woman and inspires her to express her unique beauty and sensuality. Thus, enabling to realize the potency of beauty.<br /> Lifebuoy is available in multiple variants in soaps and specialist formats such as liquid handwash, catering to the entire family.<br /> Liril Awaken, and enliven your senses with a Liril bath.<br /> Lux believes in passion for beauty. It continues to be a favorite with generations of users for a sensuous experience of luxury.<br /> Pears the purest and most gentle way to skincare!<br /> Pepsodent India is committed to improve the overall Oral health of Indians.<br /> Pond’s Get the expert to look after your skin<br /> Rexona gives you 24 hr protection from sweat and body odour and therefore the confidence to handle whatever the day has in store.<br /> Sunsilk encourages young women in India to live for today. Sunsilk helps you transform the beauty of your hair instantly because LIFE CAN'T WAIT!!<br /> Vaseline Your skin is amazing. It deserves to be treated as such.<br />II. Operating Performance<br />Year2006(12)2007(12)2008(12)2009(15)2010(12)Net sales12374.7613829.2516356.0320445.0417,737.57Change in sales794.961454.492526.786615.79-2,707.47% change6.8611.7518.2747.83-13.24<br />At the operating level, HUL posted a weak performance during the Financial year 2009-2010, despite a fall in input costs, largely on account of a significant jump in advertising expenditure due to intense competitive pressures. <br />Although previous year company has changed its accounting period from January- December to January, 08- March, 09 hence these figures do not give the correct representation of the year on year increase when the net sales of the company are adjusted to 12 months period the net increase is accounted to be of around 18 % with a figure of net sales of 16356.03 crores. The net sales increase for the previous year was somewhere around 11.75%.<br />Advertising spending rose 34% to Rs 751 crore, or around 16% of sales, from around 13% in the year earlier. Profit before interest and tax from personal care products such as skin creams and tooth paste rose 26% to Rs 339 crore.<br />The company has spent heavily on advertisements across categories to increase sales because of competition from Procter & Gamble in the laundry segment and ITC in soaps.<br />Though there has been a decrease in the net sales of the company but the expenditure has also decreased from Rs 18,218.49 cr to Rs 15,222.89 cr, which eventually resulted in lesser investment.<br />Trend Analysis of sales<br />year 20072008(12)2009(15)Net sales13829.2516356.0320445.04sales due to Exports1348.961260.561575.7% of Net sales9.757.707.70% change-6.5516.8<br />After a bad phase of 2001- 2004 when the overall increase in the Net sales was not very high Hindustan Unilever has shown some good results in the previous few years as it has been able to record a CAGR of greater than 11% for the previous 4 years and also the profit has increased with a CAGR of 17% in these years. During this period as the sales have maintained a steep trend the profit margins have also increased. The annual growth rate in net sales which was recorded for the previous years from 2004- 2009 is 9.21, 6.86, 11.75 and 18.27. This steady growth has resulted in the payment of high dividend which has established HUL as a company with high return on investment and as a market leader and has given it a power to acquire the premium position in the market as compared to other FMCG companies.<br />The revenue generated by the export sales in the year 2007-2008 was 1348.96 crores which has increased by 16.80% to 1575.70 crores but this sales is for the period of 15 months and when accounted for the period of 12 months the amount comes out to be 1260.56 crores which means there has been a reduction in the net export sales in this year by an amount of 88.40 crores or we can say there has been a net reduction of 6.55% in the year 2008-2009. <br />There has also been a decrease in the share of export in net sales which was 9.75 % in the year 2007-08 has come down to 7.70 %. Although the company’s report suggests that there has been an increase in the net export sales but this is due to change in accounting period. The products which have done well are Pears, skin care products and oral care in countries like Sri Lanka and Myanmar and tea and coffee brands in European countries.<br />CATEGORY WISE CONTRIBUTION:<br />Some highlights are given below in respect of each of the business categories of the Company. Increase/growth percentages refer to the comparison of the financial year ended31st March, 2010 with the 12 months period ended 31st March, 2009.<br />1. Home & Personal Care Business (HPC)<br />The HPC Business consists of Fabric Wash, Household Care, Personal Wash and Personal Care categories, which includes products such as toothpaste, shampoo, skin care, deodorants and color cosmetics. During the year, the HPC business delivered sales growth of 6.6%.While the underlying volume growth was higher, aggressive price reductions were effected in the market place linked to significant reduction in commodity prices over the previous year. Further, competitive intensity increased substantially in most categories, especially in the second half of the year; evidenced by many new competitive entries as well as a step up in media spend levels. As a result of these efforts, the growth momentum of the HPC business accelerated through the year with double digit volume growth in the last quarter of the year under review. <br />2. Soaps & Detergents<br />Soaps and Detergents category recorded modest turnover growth of 1.5%. The growth of the Soaps and Detergents category needs to be viewed in the context of a very high base in the previous year which saw high price increases linked to commodity cost inflation. During the year under review, the prices of products, particularly in the Detergents segment, were reduced taking into account the reduction in commodity prices. The segmental margin of this category was lower by 100 bps linked to the volatility in commodity costs in the initial part of the year and the actions taken to defend the Company's leadership position in the face of heightened competitive intensity. <br />3. Personal Products<br />The Personal Products category of the Company comprise of Hair Care, Skin Care, Oral Care, Deodorants and Color Cosmetics. The Personal Products category grew by 16.2%overall with good growth in profits.<br />4. Foods<br />The business has delivered strong double digit growth. This growth has been broad based across the portfolio and has been driven through a deep understanding of consumer and customer needs translated into relevant innovations. The growth in the Foods business has been achieved in the face of some key challenges: <br />• High competitive intensity from national as well as local players in many categories. HUL has responded through increased brand investments and value enhancing innovations. <br />• Significant food inflation across the spectrum leading to market slowdown and down trading in some categories as the year progressed. The Company has responded to this challenge through a combination of consumer centric value packs and judicious price increases combined with aggressive cost saving programs.<br />5. Beverages<br />For three consecutive years, inflation in the Tea commodity continues unabated, driven by strong global demand and local crop shortages. This has resulted in down trading and the overall growth in the discounted segment of the market, becoming the major portion of the portfolio. <br />Market shares during the year came under pressure due to lack of a strong presence at the discount end of the market.<br />During the year under review, Coffee markets have decelerated significantly in comparison to earlier years due to adverse climatic and weather conditions. Through key innovations, the Company was able to register strong volume growth in the second half of the year. <br />6. Ice Creams<br />The year under review has been an excellent, with strong growth in both the impulse and take home segments. Growth has been driven by the three key platforms 'Cornetto', 'Selection' and 'Paddle Pop'. Significant inflation in input prices put tremendous pressure on the margins of the business. <br />Significant investments are being made by the Company in front end assets and for leveraging IT for enhanced scalability and asset productivity. Going forward these is expected to provide the Company a competitive advantage.<br />7. Exports Business<br />Company managed to achieve a turnover of Rs. 1,000 crores with good profits and strong cash delivery. The non-value adding commodity exports were rationalized resulting in improved Gross Margins. Cash generation was significantly enhanced by placing specific focus on the reduction of Working Capital through improved inventory management and debtor’s reduction, while simultaneously enhancing customer service.<br />Peer comparison<br />HUL <br />Hindustan Unilever (HUL) is the largest pure-play FMCG Company in the country and has one of the widest portfolio of products sold via a strong distribution channel. It owns and markets some of the most popular brands in the country across various categories, including soaps, detergents, shampoos, tea and face creams. <br />PERFORMANCE: <br />After stagnating between 1999 and ’04, the company is back on the growth track. In the past three years, HUL’s net sales have witnessed a CAGR of 11%, while net profit has posted a CAGR of 17%. The company is set to gain further momentum, given the revival of consumer spending. HUL sells products at different price points straddled between the entire value chains. In the past few years, it has diversified into processed foods, ice-creams, water purifiers and specialized chemicals. But home and personal care (HPC) continues to remain the bread & butter segment for the company. This division accounted for 72% of HUL’s revenue and 91% of its profit (before interest and tax) during the year ended December ’07. So, it won’t be wrong to call HUL a personal care major. <br />GROWTH DRIVERS:<br />The Company has been launching new products and brand extensions, with investments being made towards brand-building and increasing its market share. HUL is also streamlining its various business operations, in line with the ‘One Unilever’ philosophy adopted by the Unilever group worldwide. Introduction of premium products and addition of new consumers via market expansion will be HUL’s growth drivers. <br />FINANCIALS:<br /> HUL’s net sales have recorded a CAGR of more than 11% over the past three years, while its net profit has posted a CAGR of 17% during the same period. While its sales have maintained a secular growth trend, profit margins have shown an erratic trend during the period. High dividend yield, steady growth and strong market standing in its product categories have enabled HUL to command premium valuations, compared to other FMCG companies. <br />RISKS:<br />Being an MNC operating in India, HUL is more conservative in its strategies than its Indian counterparts. Moreover, given increasing competition, it faces the risk of being overtaken by domestic players in various categories. Prolonged inflation may lead to margin contraction, in case HUL is not able to pass on this burden to consumers. The company’s large size also poses a problem, since it does not give HUL the agility to address the competition it faces from national and regional players. <br />TO SUM IT UP:<br /> HUL’s up-and-running business model is a treat for investors seeking exposure in the FMCG segment. The company has delivered in the past and has the potential to do better in future. In the small and medium term, HUL is a better bet than ITC. <br />ITC <br />ITC is not a pure-play FMCG company, since cigarettes is its primary business. It is diversifying into non-tobacco FMCG segments like foods, personal care, paper products, hotels and agri-business to reduce its exposure to cigarettes. PERFORMANCE: Despite diversification, ITC’s reliance on cigarettes is still huge. The tobacco business contributes 40% to its revenues, and accounts for over 80% of its profit. This cash-generating business has enabled it to take ambitious, but expensive bets in new segments and deliver modest profit growth. ITC’s non-cigarette FMCG business — which contributes 15% of its revenues — eroded close to 8% of ITC’s profit last year. Its other businesses like hotels and paper together account for over 20% of ITC’s profit. Agri-business, which is its second-largest revenue earner, contributes one fourth to its revenues, but only 3-4 % to its PBIT. <br />GROWTH DRIVERS: <br />ITC’s backward integration to ensure that its products pass efficiently from the farms to consumers has helped it to cut down supply and procurement costs. ITC’s non-cigarette FMCG business leverages the large distribution network the company has developed by selling cigarettes over the years. A rich product mix, along with ramp-up of investment in its new sectors, will be instrumental in charting ITC’s growth path. <br />FINANCIALS:<br />During the past three fiscals, ITC’s consolidated revenue has seen a CAGR of 22%. Its profit has grown at just 12% during the same period. ITC’s sales and profits have displayed a secular growth trend. But the pressure of sustaining its new businesses, as well as higher tax burden on the cigarette business, is straining its profits. After undeterred growth spanning eight quarters, ITC witnessed a marginal de-growth in net profit for the trailing four quarters ended June ’08. RISKS: Increased regulatory clamps on tobacco, along with rising tax burden, pose a business risk for ITC. So, it has started an ambitious diversification plan, which has its own set of risks. With its foray into the conventional FMCG space, ITC has entered the high-clutter branded products market. This will burden its resources in terms of ad spend and brand-building. Creating brand recall and building market share in new products are ITC’s key challenges. Export ban and rising crop prices pose a threat for its agri-business, taxing its margins. <br />TO SUM IT UP: <br />ITC’s growth story is still evolving. ITC is eyeing the pie which HUL and other FMCG players currently enjoy. Though risky, the company’s business model will pay off in the long run. ITC has proved its expertise in the cigarettes, hotels, paper and agri-businesses. Investors who want to bank on its execution ability in FMCG can consider the stock with a long-term horizon.’<br />Raw Material Consumption<br />RESEARCH AND DEVELOPMENT<br />This is the 51st year of Research and Development (R&D) of the Company. The Company has continued to build on this heritage by further strengthening the R&D Units in Bangalore and Mumbai with stronger integration with Unilever Global R&D. The R&D programs are geared towards delivering bigger, better and faster innovations with a robust pipeline of radically new technologies with innovative consumer propositions. R&D in India continues to focus on Water Treatment, Health and Hygiene, Laundry, Skin Care, Tea, Ice Cream and Ayurveda.<br />The Company continues to benefit from the strong linkages with the Global R&D organization of Unilever. This has become even more critical in the context of entry of many global players in the attractive Indian FMCG market. These players are keen to get a slice of the large and fast growing FMCG market in India. With the strong support from Unilever R&D as well as the brand development capabilities, the Company is well placed to meet the challenges arising from the increased competition intensity.<br />The Company had entered into a Technical Collaboration Agreement (TCA) in August 1999 with Unilever PLC, which provided a non-exclusive license to manufacture specified products in accordance with and using the Technical Documentation, Information and Know-how in consideration of payment of royalty at the rate of 1% (net of tax) both on domestic and export sales of the specified products. In December 2009, the Board of Directors of the Company have approved amendments to the said TCA to include additional product categories where technical inputs are provided by Unilever as well as products of specified categories manufactured by third party manufacturers where technical inputs developed by Unilever are made available to the third party manufacturer. <br />In addition, the Board have approved a trademark license agreement with Unilever which provides for payment of trademark royalty at the rate of 1% of net sales on specific brands where Unilever owns the trade mark and the Company is the licensed user. Both these amendments are well within the Government of India Guidelines for payment of royalty.<br />On the back of strong R&D initiatives, a number of new products were launched successfully in the market. 'Pureit', a breakthrough innovation of the Company's R&D, was launched with additional technical features such as 'Auto Shut-Off' and 'Auto Fill' that enhance its safety and convenience.<br /> A winter variant of a skin lightening formulation was developed and launched as 'Fair & Lovely' Winter Fairness Cream. Also, during the year 'Lifebuoy' was re-launched with clinically proven hygiene benefits.<br />Foods R&D continue to focus on delivering healthy options with superior taste and flavours. In 2009, 'Knorr' soups were re-launched with new formulations without MSG and with 100% real vegetables. <br /> The Ice Cream business grew on the back of several successful innovations such as Cornetto variants - Strawberry Tease Cake and Black Forest. During the year, Beverages introduced a premium Green Tea, Lipton Clear Green and launched a new blend of Lipton Yellow Label with higher levels of Theanine. The Company also re-launched a superior Bru Coffee with improved aroma.<br />The continuous stream of innovative and technically advanced products launched in the market was a result of significant R&D investments and the scientific talent that the Company can attract and retain.<br />India continues to occupy a premier position in Unilever's R&D initiatives with a significant share of Global Programs backed by strong in-house scientific expertise. The Company has been working aggressively towards building these expertise bases further to address emerging needs of our consumers and to retain our competitive edge in the market place.<br />The details of expenditure on Scientific Research and Development at the Company's in-house R&D facilities eligible for a weighted deduction under Section 35(2AB) of the Income Tax Act, 1961 for the year ended 31st March, 2010 are as under :<br />- Capital Expenditure : Rs. 1.05 crores<br />- Revenue Expenditure :Rs. 27.55 crores<br />Hindustan unilever has a strong foundation and long tradition of Research & development (R & D) which differentiates it from others. These benefits flow not only from work done in Research Centres in India, but also from the centres of Unilever's global research work. With the world class facilities and a superior science and technology culture, they are able to attract the best of talent to provide significant technology differentiation to products and processes. <br />The R&D labs in Mumbai and Bangalore are aligned significantly to Unilever's global R&D. There are several exciting innovations that are in the pipeline now in Water, Laundry, Skin, Oral Care, Beverages, Savory, Ice Cream etc. These technological innovations cover the whole spectrum of consumer income segments. <br />A series of new and superior products were launched helped by the formidable global research and development activities. A range of Pond's top end products with anti-ageing and skin lightening benefits was introduced using technology developed at the global R&D centre. <br />The R & D team also developed products to address specific requirements of Indian consumers like Lifebuoy range with improved hygiene benefits and Wheel detergents requiring less effort for cleaning. Based on unique consumer insight, Foods R&D came up with an innovative design for packaging of Kissan Jam in Squeeze Tubes. India now occupies a premier position in the global R&D domain for Unilever, performing leading research and development work to advance its brands and categories. A testimony of the high quality research done by Indian labs is the recent selection of Bangalore lab as one of the six major Discovery Research Centers for Unilever globally. <br />MERGERS, ACQUISITIONS, JOINT VENTURES AND DISPOSALS<br />Divestment of 49% shareholding in Capgemini Business Services (India) Limited to Cap Gemini SA <br />In October 2006, the Company divested its 51% controlling stake in Unilever India Shared Services Limited, now known as Capgemini Business Services (India) Limited (CGSL) to Cap Gemini SA. The Company believed that the business would benefit from the systems and processes brought in by a leading player in the BPO space. Cap Gemini SA had a call option for the balance 49% stake in CGSL.<br />Consequent to the exercise of the call option by Cap Gemini SA in March 2010, the balance stake of 49% in the business held by the Company has been sold to Cap Gemini SA for a consideration of Rs. 91.1 crores.<br />Merger of Bon Limited with the Company<br />Bon Limited a wholly owned subsidiary of the Company was not engaged in any significant business activity since 2003. During the year 2005, the Company's undertaking at Sewree (Mumbai) was transferred to Bon Limited pursuant to Section 293(1)(a) of the Companies Act, 1956 to facilitate transparent understanding and review of viability of the unit costs and productivity on a standalone basis.<br />Despite all efforts by the Company, the undertaking could not be revived and was eventually closed after following the due process of law in July 2006. All legal issues with relation to the undertaking have been settled and Bon Limited was not having any operations. Therefore, for the purpose of administrative simplification, the Board of Directors of the Company, subject to the necessary approvals, decided in January 2010 to merge Bon Limited with the Company with effect from 1st April, 2009.<br />The Hon'ble High Court of Bombay has, vide its order dated 16th April, 2010, approved the scheme of amalgamation of Bon Limited with the Company. The appointed date for the above mentioned scheme was 1st April, 2009 and the scheme has been made effective from 28th April, 2010 i.e. from the date of filing certified copy of order of Hon'ble High Court with the Registrar of Companies, Mumbai.<br />III FINANCIAL PERFORMANCE<br /> BALANCE SHEET AS ON MAR, 2010<br />5 year Balance Sheet of the company<br />
    • Analysis according to Balance Sheet:-
    Gross Block and Net Block has remained constant for the first 2 years but increased in 2007 and then declined in 2009 whereas the Sales in the same period have increased constantly. This may be due to the fact that certain fixed assets may have been sold which would have generated cash, thus increasing the figure of current assets.<br />The Net Current Liability remained fairly constant in initial 2 years but has decreased drastically in the current year. This is due to the disproportionate increase in the current asset in the form of cash at hand and at bank. <br />Net Worth has increased from 0.64 in 2007 to 0.84 in 2009. It is not in line with the growth in Gross Block.<br />The Fixed Asset Turnover over the period of 2009-10 has been on decline. This has been mainly due to decline in Sales.<br />In 2007 earnings per share just surpassed dividend per share. In 2010 there has been a great decline in both EPS and DPS which implies that company is not making much profit which come from the fact that there is decline in sales.<br />Profit and loss a/c<br />------------------- in Rs. Cr. -------------------<br /> Dec '05Dec '06Dec '07Mar '09Mar '10 12 mths12 mths12 mths15 mths12 mthsIncomeSales Turnover12,108.8613,189.7014,937.8821,927.2318,462.34Excise Duty914.98945.681,057.321,422.95693.22Net Sales11,193.8812,244.0213,880.5620,504.2817,769.12Other Income218.01512.60428.37276.54199.73Stock Adjustments-48.12129.97162.06434.3319.47Total Income11,363.7712,886.5914,470.9921,215.1517,988.32ExpenditureRaw Materials6,170.986,687.307,542.7811,380.059,003.97Power & Fuel Cost168.74180.79198.89301.37244.34Employee Cost591.32642.81767.811,152.12936.30Other Manufacturing Expenses191.82187.37204.10297.34254.40Selling and Admin Expenses2,010.102,328.512,561.123,857.483,737.52Miscellaneous Expenses429.09541.52691.49985.31814.36Preoperative ExpCapitalised0. Expenses9,562.0510,568.3011,966.1917,973.6714,990.89 Dec '05Dec '06Dec '07Mar '09Mar '10 12 mths12 mths12 mths15 mths12 mthsOperating Profit1,583.711,805.692,076.432,964.942,797.70PBDIT1,801.722,318.292,504.803,241.482,997.43Interest19.1910.7325.5025.326.98PBDT1,782.532,307.562,479.303,216.162,990.45Depreciation124.45130.16138.36195.30184.03Other Written Off0. Before Tax1,658.082,177.402,340.943,020.862,806.42Extra-ordinary items44.04-0.211.6748.5343.97PBT (Post Extra-ord Items)1,702.122,177.192,342.613,069.392,850.39Tax294.00321.80417.14572.94648.36Reported Net Profit1,408.101,855.371,769.062,500.712,202.03Total Value Addition3,391.083,881.004,423.416,593.625,986.92Preference Dividend0. Dividend1,100.621,325.481,976.121,634.511,417.94Corporate Dividend Tax159.62185.90355.50277.79238.03Per share data (annualised)Shares in issue (lakhs)22,012.4422,067.7621,774.6321,798.7621,816.87Earning Per Share (Rs)6.408.418.1211.4710.09Equity Dividend (%)500.00600.00900.00750.00650.00Book Value (Rs)10.4712.346.619.4511.84<br />Analysis according to Profit and Loss Account:-<br />There has been a constant increase in Sales from 2005 to 2009 but decrease in sales figures is seen in 2010.<br />The expenditure has been on increase until in 2010 there has been a decrease in the expenditure. There was less demand so there was decrease in production and net sales.<br />Gross Profit has been increasing constantly and so is the trend seen for Operating profit figure with a small decline in 2010.<br />PBT shot up abruptly from 1.00 in 2005 to 1.35 in 2006 but after that there has been a steady growth. The increase in PBT is showing a direct relationship to the growth in Sales.<br />But PAT has been increasing constantly from year 2005 to 2009 and a small dip in 2010. This difference between the growth pattern of PBT and PAT can be attributed to Extra-ordinary items whose value is much more in 2006 as compared to 2005. Therefore PAT has increased to 1.13 only in 2006 from 1.00 in 2005. Again the value of Extraordinary items decreased in 2009, therefore the PAT value increased from 1.26 in 2007 to 1.45 in 2010.<br />There has been a steady increase in the value of Dividends paid till year 2007 after which there has been a decline from 1.8 in 2007 to 1.19 in 2009. This may be due to the fact that since total debts has increased, management has decided to pay lower dividends in the current year<br />Overall Assessment<br />The company has high debts in the current year signifying that it is highly leveraged.<br />The company has a Net Current Liability. It means that it is making money out of the non-interest bearing outstanding of its suppliers.<br />The company is generating huge amount of income which has been increasing at a constant rate.<br />The Earnings per Share (EPS) is showing a constant increasing rate signifying that the company is generating high profits at a steady rate.<br />Segment wise there has been a increase in personal product consumption which has taken up some of the market share of food.<br />TREND ANALYSIS<br />Trend Analysis is done to compare the position of the company over a period exceeding two years. The method is quite simple. Here the farthest year figure is taken as 1.00 and all successive years’ figures are accordingly indexed.<br />The utility of the tool lies in the fact that while two years’ comparison may provide indication of growth, it may not lead to a conclusive judgment and therefore it becomes necessary to confirm the findings of horizontal analysis through trend analysis over a longer period. In our case, the period is taken from Dec 2005 to Mar 2010. <br />CASH FLOW<br />------------------- in Rs. Cr. -------------------<br /> Dec '05Dec '06Dec '07Mar '09Mar '10 12 mths12 mths12 mths15 mths12 mthsNet Profit Before Tax1604.471861.682184.533025.122707.07Net Cash From Operating Activities2018.131594.821680.112028.653432.37Net Cash (used in)/fromInvesting Activities386.16-197.951023.76878.19-1137.46Net Cash (used in)/from Financing Activities-2748.25-1344.73-2921.34-1330.36-2180.32Net (decrease)/increase In Cash and Cash Equivalents-343.9652.15-217.471576.49114.59Opening Cash & Cash Equivalents698.99364.79418.33200.861777.62Closing Cash & Cash Equivalents355.03416.94200.861777.351892.21<br />ANANLYSIS:<br />
    • Net profit before tax showed a regular increase over the years from 2005 to 2009 but there is a decrease in 2010 primarily due to lesser investment and lesser net sales.
    • Although there was a decline in the Net profit before tax but in 2010 Net Cash from operating activities was on rise. This shows that HUL have invested heavily on advertisement due to peer pressure i;e P&G.
    • In 2010 the opening Cash and Cash Equivalents is on heavy rise which shows that the closing stock in 2009 was high. So the Net sales in 2009-10 was low
    RATIO ANALYSIS OF HUL:<br />LIQUIDITY RATIOS: <br />Current Ratio = Current Assets (Current Assets + Loans & Advances)<br /> ------------------------------------------------------------<br /> Current Liabilities (Current Liabilities + Provisions)<br /> Year Current Ratio2009-20105367.76/6733.21 = 0.802008-20094480.768/4627.04 = 0.962007-20083277.41/5110.98 = 0.64<br />This ratio measures the ability of the company to discharge its day to day expenses out of the cash or the current assets that the company possesses. Though the ratio has increased and then decreased w.r.t previous year, still this ratio lies on the lower side for HUL in the above years. It indicates that the current liabilities and Provisions are very high. It means that the company may have to look for other sources to finance its current liabilities.<br />Another reason is that the company enjoys a longer credit period from its suppliers than what it allows to its customers which leads to Current Liabilities being more than Current assets at a point in time. It indicates the trust that the suppliers have in the company as they provide them with a longer credit period.<br />Quick Ratio = Current Assets – Prepaid expenses – Inventories<br /> -----------------------------------------------<br /> Current Liabilities<br /> Year Quick Ratio2009-2010(5367.76 - 2179.93) / 6733.21= 0.472008-2009(4480.768 - 2023.08) / 4627.04 = 0.532007-2008(3277.41 - 1953.6) / 5110.98= 0.25<br />On comparing the Quick Ratio with Current Ratio values, a marked difference is observed in the three. This is an indicator for HUL that inventories maybe piling up at HUL. <br />It can be seen from the above table that the current ratio for all the years is less than 1. This signifies that HUL has short term liabilities greater than the short term assets. It implies that the company would have problems in managing its short term liabilities and liquidity requirements. The company might resort to financing its short term liquidity requirements by long term sources of finance.<br />Net Working Capital : Current Assets – Current Liabilities<br /> Year Net Working Capital2009-20105367.76 – 6733.21 = -1365.452008-20094480.768 - 4627.04 = -146.272007-20083277.41 - 5110.98 = -1883.57 <br />As Net working Capital is negative for all years, it shows that creditors are more than debtors. It could also mean that the creditors are giving a higher credit period to HUL than what HUL is providing to its customers.<br />ACTIVITY / TURNOVER RATIOS:<br />Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory<br />Cost of Goods Sold = Net sales – Gross Profit<br /> Year Inventory Turnover Ratio2009-20108.992008-20099.262007-20087.20<br />Inventory Holding Period = 365 days / Inventory Turnover Ratio<br /> Year Inventory Holding Period2009-2010365/8.99 = 40.602008-2009365/9.26 = 39.412007-2008365/7.20 = 50.69<br />This shows a high inventory holding period of about 2 months and on decline, which could mean a stock pile of inventory. Inventory holding period has shown a marginal improvement from the last year. In relation to the supplier’s credit period, the inventory holding period is comfortable.<br />Debtors Turnover Ratio = Net Credit Sales / Average Debtors<br />Assuming Net Sales = Net Credit Sales<br /> Year Debtors Turnover Ratio2009-201029.242008-200941.832007-200831.41<br />Debtor Holding Period = 365 days / Debtors turnover Ratio<br /> Year Debtor Days2009-2010365/29.24 = 12.482008-2009365/41.83 = 8.722007-2008365/31.41 = 11.62<br />Debtor’s turnover ratio or accounts receivable turnover ratio indicates the velocity of debt collection of a firm. In simple words it indicates the number of times average debtors (receivable) are turned over during a year. This shows that the company has reduced its debtor days by 2 days but in 2010 this has increased evidently. The reason could be poor receivables management by the company.<br />Creditors Turn Over Ratio = Net Credit purchases / Average Creditors<br />Since the separate head of purchases is not available we have assumed the value of the net credit purchases to be equal to expense on raw materials.<br /> Year Creditors Turnover Ratio2009-20102008-20097656.256/2761.83 = 2.7722007-20086257.27/2671.09 = 2.342<br />Payment Period = 365/ Creditors Turnover Ratio<br /> Year Payment Period2009-20102008-2009365/ 2.772 = 131.67 2007-2008365/2.342 = 155.84<br />The high value of Creditors Payment Period indicates that HUL enjoys a very high credit period from its suppliers which is an indicator of the supplier’s trust in HUL.<br />On comparing the Debtor and the Creditor days we find that the Debtor days are minimal as compared to Creditor Days. This is a very positive indicator for HUL as it gains a lot from this arrangement.<br />SOLVENCY RATIOS:<br />Debt to Equity Ratio = Total debt / Shareholders Funds<br /> Year Debt to Equity Ratio2009-2010 --2008-2009337.56/1649.20 = 0.2042007-200888.53/ 2061.51 = 0.04<br />HUL has around 80 manufacturing units in India, but also subcontracts manufacturing to around 150 smaller players. Because most of the manufacturing is outsourced, FMCG companies require very little incremental capital expenditure. They do not have to invest huge capital in assets to grow earnings. Hence FMCG companies normally have low debt-equity ratios. HUL too follows the strategy of maintaining a low D/E ratio, in line with that of other FMCG companies. <br />A low D/E ratio also means that HUL has capacity to borrow a lot more. A huge leveraging capacity is available for future growth.<br />Net Asset Value (NAV): Net worth/ No. Of Shares Outstanding<br /> Year NAV (in Rs)2009-20102008-20091649.208/2178639191 = 7.5692007-20081439.24/2204577163 = 6.528<br />This ratio indicates the efficiency of the management of company to build a back up of reserves and surplus. The NAV value for HUL is not very high considering a face value of Re.1. But there has been a substantial improvement of 15.94 % over the last year.<br />Interest Coverage Ratio = Operating Profit / Interest Cost<br /> Year Interest Coverage Ratio2009-20102797.70/6.98 = 400.822008-20092420.672/20.256 = 119.52007-20082353.33/25.5 = 92.28<br />Extremely high values of ICR indicate that HUL is comfortably placed to service its interest obligations out of the revenues it is generating. It has improved further over the previous year. <br />Debt Service Coverage Ratio: This value cannot be calculated as the repayment schedule of the company is not known.<br />PROFITABILITY RATIOS: <br />Gross Profit Margin : Gross Profit / Net Sales * 100<br /> Year Gross Profit Margin2009-201014.70 %2008-200913.50 %2007-200815.86 %<br />Operating Profit Margin : Operating Profit / Net Sales * 100<br /> Year Operating Profit Margin2009-20102797.70/17769.12*100 = 15.74 %2008-20092420.672/16153.88*100 = 14.98 %2007-20082353.33/13640.87*100 = 17.25 %<br />Net Profit Margin : Net Profit / Net Sales * 100<br /> Year Net Profit Margin2009-20102202.03/17769.12*100 = 12.39 %2008-20091983.992/16153.88*100 = 12.2 %2007-20081718.81/13640.87*100 = 12.6 %<br />EXPENSE RATIOS:<br />Raw Material Expense Ratio: Raw Material Expense/ Net Sales*100<br /> Year Raw Material Expense Ratio2009-20109003.97/17769.12*100 = 50.67 %2008-20097656.256/16153.88*100 = 47.39 %2007-20086257.27/13640.87*100 = 45.87 %<br />Selling and Administrative Expense Ratio: Selling and Admin. Expenses/ Net Sales*100<br /> Year Selling and Admin Ratio2009-20103737.52/17769.12*100 = 21.03 %2008-20093065.656/16153.888*100 = 18.97 %2007-20082568.11/13640.87*100 = 18.82 %<br />The selling and administrative expense ratio comes out to be almost 21% of the net sales value. This highlights the fact that in FMCG companies like HUL the selling expenses happen to be very large. It also points out to the nature of FMCG industry which is largely dependent upon selling initiatives like advertising etc. <br />RETURN ON INVESTMENT (ROI) RATIOS:<br />Return to Equity Shareholders (ROE/RONW) = PAT / Net Worth * 100<br />Net Worth = Equity Shareholders Funds + Reserves Surplus – Misc Expenses not w/o<br /> Year ROE2009-20102202.03/2008-20091983.992/1649.20*100 = 120.292007-20081718.81/1439.24*100 = 119.42<br />The ROE absolute values of ROE are very high indicating a very strong position of the company from the perspective of all stakeholders and prospective investors. <br /> Return on Capital Employed (ROCE) = Operating Profit (1 – tax rate)*100/ Capital Employed<br /> Year ROCE2009-20102797.70*(0.66)/2008-20092420.672*(0.66)/(511.95)*100 = 3122007-20082353.33*(0.66)/(306.28)*100 = 507<br />CAPITAL MARKET RATIOS:<br />Earnings per Share = (Net Profit – Pref. Dividend)/ No. Of Shares Outstanding<br /> Year EPS2009-20102008-20091983.992/2178639191 = 9.102007-20081718.81/2204577163 = 7.79<br />The EPS has shown an improvement of 16.8 % from the previous year which is a positive indicator for the company.<br />P/E Ratio: Market Price of Share/ EPS<br /> Year EPS2009-20102008-2009238.20/ 9.10 = 26.1752007-2008213.90/7.79 = 27.4<br />There has been a marginal decrease in the P/E Ratio.<br />Earning Yield: EPS/ Market Price of Share*100<br /> Year Earning Yield2009-20102008-20093.82007-20083.6<br />Dividend Yield: Dividend per share/ Market Price per share*100<br /> Year Dividend Yield2009-20102008-20097.5/238.20 = 3.12007-20089/213.9 = 4.2<br />Market Capitalization = Equity Share Price * Number of Shares<br /> Year Market Capitalization ( in crores)2009-20102008-2009238.20 * 2178639191 = 51895 2007-2008213.9 * 2204577163 = 47155 <br />There has been an overall increase in the stock price of HUL which has led to an increase in the Market Capitalization value.<br /> <br />DU PONT ANALYSIS: <br />YearReturn on Net Worth = Net Profit Margin * Net Worth Turnover PAT/Net Worth*100 =(PAT/Net Sales*100) * (Net Sales/Net Worth)2009-20102008-2009120.29 = 12.2 * 9.794 2007-2008119.42 =12.6 * 9.477<br />From the DuPont Analysis, it can be seen that the increase in the value of RONW is contributed by Net worth Turn over which has increased over the previous year. Net Profit Margin has not contributed to the increase in RONW as its value has decreased.<br />Overall analysis:<br />HUL is a very strongly solvent company. Institutions and banks will compete with each other to lend to the company on the slightest indication to borrow. <br />HUL is efficiently using the resources which have been provided by its suppliers. The working capital management is impressive.<br />Return on Investment as depicted by the RONW and ROCE ratios is very high. This means that the company is in a strong position and in a favorable position for all stakeholders.<br />The market capitalization of the company has increased significantly from the previous year which indicates the positive sentiment of investors regarding the company.<br />A large part of the company’s expense is selling expense which indicates the nature of the FMCG industry in which HUL operates, where advertising plays a very big role.<br />Analysis of auditor’s report:<br />HUL has been audited by the auditing firm Lovelock and Lewes, Chartered Accountants, Mumbai.<br />The auditors have verified that HUL is maintaining proper records showing full particulars including quantitative details and situation of fixed assets.<br />According to the auditors, the company is managing its inventory effectively by maintaining proper records and physically verifying the inventory.<br />Auditors have also stated the internal audit system of the company is appropriate according to its size and nature of business.<br />The auditors verify that the company is generally regular in depositing its dues like Income Tax, Wealth Tax, Customs Duty, Excise Duty, Provident Fund etc.<br />The auditors state that the company has not come out with any Public issue during the financial period audited by them <br />The auditors also confirm that the company has not made any losses in the said financial year.<br />Accounting Policies Analysis<br />Basis for preparation of accounts<br />The accounts have been prepared to comply in all material aspects with applicable accounting principles in India, the Accounting Standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, 1956.<br />Fixed Assets<br />Fixed assets are stated at cost less depreciation except in the case of certain Land and Development in the Tea Estates Division shown at revalued amount. In Tea / Coffee estates, the cost of extension planting of cultivable land including cost of development is capitalized.<br />Depreciation is provided (except in the case of leasehold land which is being amortized over the period of the lease) on the straight line method and at the rates and in the manner specified in Schedule XIV of the Companies Act, 1956. However,<br />- Certain employee perquisite-related assets are depreciated over four to six years, the period of the Perquisite scheme.<br />-Computers and related assets are depreciated over four years.<br />-Certain assets of the cold chain are depreciated over four / seven years and<br />- Motor vehicles are depreciated over six years<br />Assets identified and evaluated technically as obsolete and held for disposal are stated at their estimated net realizable values.<br />Goodwill and other Intangible Assets<br />Goodwill and other Intangible assets are amortized over the assets useful life not exceeding.<br />Investments<br />Investments are classified into current and long-term investments. Current investments are stated at the lower of cost and fair value. Long-term investments are stated at cost. A provision for diminution is made to recognize a decline, other than temporary, in the value of long-term investments.<br />Inventories<br />Inventories are valued at the lower of cost, computed on a weighted average basis, and estimated net realizable value, after providing for cost of obsolescence and other anticipated losses, wherever considered necessary. Finished goods and work-in progress include costs of conversion and other costs incurred in bringing the inventories to their present location and condition.<br />Employee related Liabilities<br />Contributions to defined contribution schemes such as Provident Fund and Family Pension Fund are charged to the profit and loss account as incurred. The Company also provides retirement / post-retirement benefits in the form of gratuity, pensions, leave encashment and medical. Such benefits are provided for based on valuations, as at the balance sheet date, made by independent actuaries.<br />DIRECTORS REPORT & MANAGEMENT DISCUSSION ANALYSIS<br />Results<br />1. FINANCIAL PERFORMANCE<br /> Rs. Crores<br /> Twelve Months Fifteen Months <br /> period ended period ended<br /> 31st March, 2010 31st March, 2009 <br />Turnover, net of excise 17,523.80 20,239.33<br />Profit before tax 2,707.07 3,025.12<br />Net profit 2,202.03 2,496.45<br />Dividend (including tax on <br />distributed profits) (1,655.97) (1,912.29)<br />Transfer to General Reserve (220.20) (250.00)<br />Profit & Loss Account balance carried forward 802.19 531.66<br />1.2 Category wise Turnover:<br /> Rs. Crores<br /> Twelve Months period Fifteen Months period <br /> ended 31st March, 2010 ended 31st March, 2009<br /> Sales Others* Sales Others*<br />Soaps and Detergents 8,180.29 85.35 9,770.26 114.37<br />Personal Products 4,969.36 78.54 5,272.31 112.22<br />Beverages 2,119.44 22.99 2,272.29 27.22<br />Foods 713.97 16.81 791.25 17.05<br />Ice creams 228.94 2.06 229.44 5.88<br />Exports 1,000.15 5.10 1,567.29 8.79<br />Others 315.50 31.22 344.41 14.13<br />Less: Inter segment revenue (3.85) (7.92)<br />Total 17,523.80 242.07 20,239.33 299.66<br />1.3 Summarised Profit and Loss Account:<br /> Rs. Crores (except EPS)<br /> Twelve months Fifteen months <br /> period ended period ended <br /> 31st March, 2010 31st March, 2009<br />Net sales 17,523.80 20,239.33<br />Other operational income 201.53 384.17<br />Total 17,725.33 20,623.50<br />Operating Costs and expenses (14,975.36) (17,583.31)<br />PBDIT 2,749.97 3,040.19<br />Depreciation (184.03) (195.30)<br />PBIT 2,565.94 2,844.89<br />Interest Income (net) 141.13 180.23<br />PBT 2,707.07 3,025.12<br />Taxation : (604.39) (524.41)<br />PAT (before exceptional items) 2,102.68 2,500.71<br />Exceptional items (net of tax) 99.35 (4.26)<br />Net profit 2,202.03 2,496.45<br />Basic EPS (Rs.) 10.10 11.46<br />On a like to like basis i.e. comparing the results for the financial year ended 31st March 2010 with the unaudited results for the 12 months period ended 31st March 2009, your Company registered an overall turnover growth of 6.4% and improved operating margin by 10 bps. Net Profit (after Exceptional Items) grew by 4.1%. Basic Earnings Per Share for the period <br />2009-10 was Rs. 10.10.<br />The report opens with the director of the company stating that the accounting year of the company has changed from the calendar year (January-December) to financial year (April-March), to avoid duplication in preparation and audit of accounts under the Companies and Income Tax Acts and this change helps in simplifying the process, thereby saving cost and time. And because of this the results of the company have been prepared for 15 months.<br />The report talks about the financial performance stating that the company has done well in the last financial year with a growth of almost 48% in PAT for the period of fifteen months. <br />The company’s focus on cash generation continued and they delivered a strong operating cash flow during the period. This was driven by good business performance, underlying efficiencies and cost savings across the supply chain and a continued efficient collection system. The report gives us a glimpse of the current situation of the company and it is clearly evident that the company is doing well as the major figures of the company are on the rise such as ROCE is increasing, the EPS is increasing etc.<br />The company is paying a total dividend of Rs.7.50 per equity share of the face value Re.1 which includes interim dividend of Rs. 3.50.<br />The director in its report has confirmed that while preparing the annual accounts of the company all the accounting standards and policies were followed which is clearly evident from their annual reports.<br />Usually directors report of company only talks about the financial performance of the company. Whereas in HUL’s case we see that along with the report they have included the Management Discussion Analysis (MDA). <br />In the report MDA talks about the economy and markets stating the condition of global economy that was in the year 2008 and its effect on the FMCG market. It clearly stated that this market was not much affected and it held its value growth levels with the help of various government fiscal policies.<br />Talking about the different categories under its banner they have evaluated the changes that took place. Although there were many hurdles and challenges that every category had to face but even then most of the sectors showed growth and improvements.<br />The ‘Home and the Personal care’ business recorded a growth of almost 50% although it had challenges of increased prices of petrol and competition.<br />Under the ‘Foods’ category the thing that was inferred was that the business sustained its growth momentum of the last three years. The growth has been broad based, competitive and profitable. Delivering product freshness continued to receive utmost priority and several actions have been taken to further reinforce the work already done. It was very clearly delivered in the report that the ‘Export Business’, ‘Beauty & Wellness’ and ‘Water’ category were also doing good and the company won a few awards under the water category.<br />Going further the directors report talks about the customer management systems which were the area of special focus for the company. What we learn from this part is that the company is investing a good amount in improving their distribution systems of both urban and rural India to substantially improve speed of information, quality of service and productivity of human resources. Also the Company is committed to understand the changing shopping habits and to deliver appropriate solutions to grow the business across categories.<br />During the last financial year the company laid a lot of stress on the improvement of it supply chain in order to eliminate hidden and wastes costs and was successful to great extent. It also talks the Project Shakti a rural initiative taken up by the company to empower women by providing them employment opportunities which is very good. As it will not only the women but also help the company indirectly by creating its base in rural India as well.<br />The Research and development part of the report gives us an overview of the new products that were launched last year and what products are in the pipeline. It tells us that last year with the help of its research and development the company was successfully able to new products and that too cost effectively. The various products that were launched during that period include a range of Pond’s top end<br />Products, Lifebuoy range with improved hygiene benefits and Wheel detergent requiring less effort for cleaning, innovative design for packaging of Kissan Jam in Squeeze Tubes and a lot more.<br />There are several exciting innovations that are in the pipeline now in such as Water, Laundry, Skin, Oral Care products and Beverages, Savory, Ice Cream etc.<br />Apart from these things the thing that is clearly evident from the report is that the company is not only carrying out business activities but is also taking care of its employees and the society.<br />The Human Resources (HR) agenda for the year 2008 was focused on strengthening three key areas – completing the second phase of the HR Transformation (HRT) programme that had been initiated in 2007, building organizational and individual capabilities and significantly enhancing people productivity to drive sustainable business growth.<br />The company has also made significant progress in the area of corporate social Responsibility over the last few years.<br />The company’s water usage had reduced by 26%, electricity usage has gone down by 34% and there has also been a significant reduction in the emission of green house gases. Now all of this information which is disclosed in the director’s report tells us that the company is also going well on the environmental part. And this thing is very clear as the Company believes that the long-term growth and success of the business goes hand in hand with ensuring a sustainable future for the planet and helping society to prosper.<br />The company in the last year planned to transfer of certain immovable properties of the Company located at Brookefields, Bangalore to Brooke Bond Real Estates Private Limited, a subsidiary of the Company. For this the company took the shareholders’ approval. Well this was good on their part. <br />The transfer was good for the company as the objective of the said was to develop an IT and IT enabled Special Economic Zone at the Unit. For this the Company also received in-principle approval from the State Government of Karnataka for such a project.<br />For any company the employees are their best assets. For this the company also very well disclosed their ESOPs which shows their concern for the employees of the company<br />During the year Mr. NitinParanjpe was appointed as the Managing Director and CEO of the Company to succeed Mr. Douglas Baillie, who stepped down as a CEO to join the Unilever Executive, taking on the role of President, Western Europe. This thing has been very clearly mentioned in the report.<br />Also they have made proper and right disclosure about the changes in different positions of responsibility that took place in the year that passed.<br />And in the end the report talks about who and whereabouts of the auditors of the company.<br /> SWOT Analysis<br />
    • Strong and well differentiated brands with leading share positions.
    • Distinctly placed products provide reach to every segment of society.
    • Consumer Understanding and systems for building consumer insight.
    • Integrated supply chain and well spread manufacturing units.
    • Distribution structure with wide reach, high quality coverage
    • Access to Unilever global technology, capability and sharing of best practices from other Unilever companies
    • Well placed to take advantage of growth in rural India and lower strata of the society through “Shakti”
    • It can introduce products from its parent company in order to cater to the changing consumer tastes and opportunities in food sector.
    • It has the potential of being a market leader in exports by positioning itself as a sourcing hub for Unilever companies in various countries.
    Strength<br />HLL enjoys a formidable distribution network covering over 3400 distributors and 16 million outlets. This helps them maintain heavy volumes, and hence, fill the shelves of most outlets. The new sales organization named 'One HLL' brings "Household and Personal Care" and foods distribution networks together, thereby aligning all the units towards the common goal of achieving success. HLL has been continuously able to grow at a rate more than growth rate for FMCG Sector, thereby reaffirming its future stronghold in Indian market.<br />Project Shakti - Rural India is spread across 627,000 villages and possesses a serious distribution challenge for FMCG Cos. HLL has come up with a unique and successful initiative wherein the women from the rural sector market HLL products, and hence, are able to reach the same wavelength as of the common man in village. Apart from product reach, the initiative also creates brand awareness amongst the lower strata of society. This has brought about phenomenal results.<br />Weaknesses<br />HLL's market dominance, originating from its extensive reach and strong brand presence, allowed it to raise the prices even as raw materials were getting cheaper. Hence, though the volumes decreased, the margins grew, and company was able to earn more profits. But higher margins attracted competition in areas of operations. HLL's strategy remained focused on creating power brands and earning higher margins. It was not left with any other option but to try cutting down the costs in order to protect volumes, if not increase it.<br />HLL's weakness was its inability to transform its strategies at the right time. They continued with the same old strategy which helped them gain profits but were not genuine in this changed environment. HLL's risk aversion and market myopia led to stagnation of business, and ferocity of competition forced it into a defensive mode. Lack of pricing power in core business and absence of growth drivers have put HLL on a deflationary mode.<br />Opportunities<br />India is one of the world's largest producers of FMCG goods but its exports are miniscule as compared to production. Though Indian Cos. has been going global, their focus is more towards Asian countries because of the similar preferences. HLL is one of the top companies exporting FMCG goods from India. An expansion of horizons towards more and more countries would help HLL grow its consumer base and henceforth the revenues.<br />Opportunity in Food Sector - The advent of modern trade has opened up greater opportunities for HLL to diversify its brand and strength its food division. It could look at introducing products from its parents stable like margarines and could also look at expanding its Knorr range of products.<br />Well-placed to take advantage of future FMCG Growth - HLL reach out 80% of 207 million households in the country through various brands. It has a very well-defined product portfolio spread across many product categories. <br />They can expand horizon into more and more countries. Untapped markets in Ayurveda medicines and other such consumer products.<br />Threats:<br />
    • Reduced dependence on cigarette business.
    • Unfavorable raw material prices due to inflation, reducing profitability.
    • Heavy onslaught of competition in the core categories from emerging players like ITC resulting in higher advertising expenditure.
    • Counterfeit products in rural areas and small towns.
    • Reduction in income of consumers due to inflation.
    TRENDS AND FUTURE PLANS:<br />HUL has been working since 1912 striving to be a multilocal multinational. They reflected national priorities over the years and remained committed over the years. They have adopted good company policies which have helped them gain edge over their competitors such as:<br />Developing and using relevant technology<br />Generating productive employment<br />Adding value to agriculture<br />Sustaining export performance<br />IN today’s period, for the quarter ending June 2007, HUL has posted a growth of 13% in net sales to reach Rs. 34.31 billion. The profits have been even better off, with PAT growing at 24.4% to reach 4.72 billion. The company is on a cost cutting spree with reduced expenditure on advertisement by 2.7%. FMCG BSE index is above 2600 points. <br />HUL is now relying more on tried and tested marketing models such as the 6P model, which focuses on getting right the product, price, package, proposition, place and promotion to attract a consumer, to expand the market and outpace competitors. In a volatile cost and consumption scenario, there are far quicker changes in the way consumers respond to pricing, place and promotion, while changes to product and proposition typically have a longer cycle time. <br />Recent trends show that niche and discretionary categories are no longer making it to the shopping basket. An Indian consumer averaged 130-140 shopping trips a year—the economic slowdown took a toll on this also as she was forced to make the packs last longer. But at the same time, data crunching at HUL threw up some paradoxical trends.<br />The paradox is further accentuated for a national player such as HUL, with the northern and eastern regions showing signs of down trading (a trend whereby consumers switch to cheaper alternatives in a difficult economic situation), while the south shows few signs of this. “And we are being far more nimble at the speed and pace at which we are acting on that information,” says Vittal.<br />The complexities are reflected in the contrasting views of analysts tracking HUL.<br />Analysts Mahesh Nandurkar and VivekMaheshwari of brokerage firm CLSA Asia Pacific Markets, in a research report immediately after the results were announced had announced an outperformer rating. “Anecdotal evidence suggests that restocking (as opposed to destocking) has already begun in categories where price cuts have been taken, which could improve revenue growth in FY10,” the report said.<br />Credit Suisse Securities (India) Pvt. Ltd is also bearish about HUL and the consumers goods market in India. In a research report on 11 May, their analysts GovindrajanChellappa and Rajasa K. wrote, “The FMCG (fast moving consumer goods) market is likely to slow down from high teens growth to low teens (it probably has already). HUL’s core categories (soaps and detergents) will likely slow more than the rest due to higher penetration levels. In this context, we are most concerned about HUL’s share loss in PP (personal products). Unless HUL manages to stem the loss, especially in oral care and soaps, deceleration in sales growth could be significant.”<br />Future Plan:<br />HUL plans to expand its portfolio in the area of Healthcare and Contraceptives. Chemical Business, as well as several certain non-FMCG export businesses. It is trying to pep up its rural distribution systems and has launched low unit price variants of its popular brands to draw in new users in the rural areas.<br />CONCLUSION:<br />With its long and luminous history, HUL is India’s true pride. It is a company which the customers in rural as well as urban areas relate to. This explains the deep penetration of HUL in Indian market.<br />Past few trends may be disturbing but there have been multi facets to the decrease in profits. The future of HUL is demanding new and high level innovations so as to cope with increasing competitions. However, HUL is well equipped with all that is needed do this Indian Giant.<br />