HUL: Will it make a comeback? - Views on News from Equitymaster

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HUL: Will it make a comeback?

Apr 21, 2010

Hindustan Unilever Limited (HUL) has been a lot in news lately. But for all the wrong reasons. Be it for losing market share, falling profitability or not keeping to the unwritten rule of advertisement. Analysts have been discussing why the company is a spent force and that it should be written off. We in this article are not going to discuss all that. In fact, we are going to explore what happened the last time when the price of HUL hit its nadir and what happened 3 years after that. In the last 5 years, the lowest price that the stock of HUL commanded was Rs. 127 in April, 2005. This price represents a trailing twelve month (TTM) PE of 24 times. For information sake, the stock at today's price of Rs 233 is trading at a PE of 21.5 times.

Rs(m) CY04 CY05 CY06 CY07 CAGR
Sales 99,270 110,605 121,034 137,178 11.4%
Sales growth -2.1% 11.4% 9.4% 13.3%  
Net Profit 11,848 13,400 15,202 17,559 14.0%
Profit margin 11.9% 12.1% 12.6% 12.8%  
Profit growth -33.1% 13.1% 13.4% 15.5%  
Dividend per share 5.0 5.0 6.0 9.1  

However, let us look at the financials of the company. In CY04, the company was losing market share (sounds familiar?). It was fighting a price war with P&G and was losing profitability (sounds familiar again?). Furthermore, HUL had decided to divest its non-core businesses and had decided to focus on only a few key brands. How did the company perform after that? As we can see from the table, the company posted a healthy sales growth rate over the next 3 years at an average of 11.4% per year. The bottom line grew by 14% annually over the same period. From this what can we infer? HUL did not worry about its stock price but continued with business as usual. From the investor's point of view what happened? The dividend paid, from CY05 to CY07 was Rs 20.1. This means that solely on the basis of dividend an investor could have made a yield of 16% on investment over three years. And what of capital appreciation? We can see that from the graph below.

Point to point the share price increased by 82%, an annual increase of 22% for investors. So, a long term investor could have stuck with the company and doubled his money over a span of three years.

Conclusion:

What can we conclude from this? The business of a company is to do business and not watch the stock market. HUL seems to be aware of that. The business of an investor is to find undervalued companies and invest in them from a long term view. Are we right in writing off HUL again? Only time will tell.


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8 Responses to "HUL: Will it make a comeback?"

k.govindan

Feb 26, 2016

yes. HUL will shine well in market

Like 

R N Rastogi

May 26, 2010



YES

Like 

koteeswaran

May 1, 2010

HUL once a buy and Hold forever stock has just become a trading stock since 2000.Practically a debt free company..current business is well managed..Paying good dividends without any break..Growth is in suspect..seem to be in a mature business and not much of innovation..So it has become a trading play as for as investors are concerned..but more better opportunities seem to be available elsewhere for investors!!!

Like 

abbas

Apr 30, 2010

HUL a professionally managed co. knows its business, though the quality of some of its recent ads in the TV
media is aesthetically poor, and does not come up to the high standard of its consumer care products it strives to promote. HUL should make a come back.

Like 

jagdeesh

Apr 25, 2010

If you believe in a share that has good management and decent business model, over a decent period of time say 3-5 yrs, there is no reason you should not make money that will help you beat inflation or fixed income securities.

Like 

CRM

Apr 22, 2010

An argument exactly opposite to the above can be put forward by taking a completely different 'point to point' time series analysis. Moral of the story: '99% of the time, its timing that matters in the stock market'. All these 'long term' stories can be true only if time is in our favour.

Like 

Shalin S Divatia

Apr 22, 2010

Definitely one of your better analysis. Clarity in Brevity rather than Ambiguity in Longevity (in those long , data filled reports leaving the reader confused at the end of it all). Keep it up!

Like 

praveen

Apr 21, 2010

thanx for such a simple analysis.

Like 
  
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