Hindustan Unilever shares soar 14 per cent

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Hindustan Unilever shares soar 14 per cent

NEW DELHI: Shares of Hindustan Unilever HUL have climbed over 14 per cent year-to-date against a 3 per cent fall in Nestle India shares during the same period. If one were to go by what ICICI Securities says, Nestle India may outperform the soap maker in the long term, led by multiple favorable factors, both intrinsic and extrinsic.

ICICI Securities said in September 25 that Nestle India has relatively less salience from rural areas compared to HUL, which has been a pioneer in driving penetration-led growth in rural areas through smaller packs and brand architecture.

Rural regions are one of the main drivers of volumes for FMCG companies, according to it.

Nestle is implementing a strategy to drive penetration-led growth through customised portfolio, local communication, building consumer connect, higher visibility and building infrastructure, according to ICICI Securities.

The brokerage said Nestle will likely drive rural penetration for its products, leading to volume growth, and that the FMCG major has also started disclosing growth for various town classes.

HUL, it said, has been a pioneer in the last few years in driving penetration-led volume growth through its LUP strategy and multi-brand architecture.

We believe that HUL will have premiumised growth as it has already achieved high penetration for some of its products, and material growth going forward will be through upgrading the consumer to a premium brand. As consumers shift away from the unorganised segment, HUL will likely gain penetration-led growth, but we believe that the benefit will be lower for HUL compared to Nestle India, according to ICICI Securities.

Nestle is less dependent on inorganic success, according to ICICI Securities.

We believe inorganic growth comes with its risks and organic growth is less risky. It said that we prefer Nestle over HUL because of the preference for organic growth.

Nestle India currently operates in four categories out of seven categories where the parent company of Nestle SA is present. It doesn't need to look for inorganic opportunities, therefore it doesn't need to look for inorganic opportunities.

As and when Nestle feels there is opportunity in that particular category, ICICI Securities said that some of the brands from the parent to India can always get some of the brands from the parent to India.

HUL is present in the relevant categories where Unilever parent company is present.

HUL has been active in acquiring companies in India in categories like Health Food Drinks GSK Consumer Ice Creams Aditya Milk Ayurvedic Hair Oil Indulekha and Female Hygiene VWash Margin expansion.

The potential for operating margins expansion is higher for Nestle India compared to HUL, according to ICICI Securities.

We believe that HUL was a beneficiary of both volume-led growth and premiumisation in the last decade, which is something that Nestle may witness in the next few years. In the medium term, HUL expects margin expansion to be moderate, because there will be increase in adspends and investment for market development activities, it said.

Nestle India is present in food categories, while HUL is present in Home care, Beauty and Personal Care BPC and Foods.

ICICI Securities said that Nestle has a lower threat from D 2 C brands compared to HUL, which has a large presence in BPC.