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BW Businessworld

Hindustan Unilever: A Reversal Of Fortunes?

Photo Credit :

From being among the worst performing stocks last year (we only looked at 10-year returns then), Hindustan Unilever (HUL) has made quite a move to become this year's best performing stock on a one-year return basis. For two consecutive quarters — the third and fourth quarters of FY12 — it posted 30 per cent year-on-year growth in adjusted after-tax profits, underpinned by 10 per cent growth in volumes.

That dramatic improvement in profitability was helped by an expansion in operating margins by about 1.5 per cent, even though input and material costs have gone up. How did HUL do it? It spent less on advertising and promotion, and managed costs much tighter.











Nitin Paranjpe CEO and managing director of Hindustan Unilever
(BW Pic By Subhabrata Das)

The explanation for the company's stock performance is largely predictable: consumer goods is a defensive sector and given the state of the stockmarket, investors are stocking up on HUL. The performance has helped of course, and the sustainability of consumption in India is a significant driving force. A flash in the pan? Not really. For one, the company — and this is probably Nitin Paranjpe's drive — is shifting from its past mania for margins to pushing volume growth. Second, from a concentrated portfolio strategy, it is moving into newer areas. Third, it is sustaining its growth and increasing volumes in a high-margin business like personal care products. Like rival ITC, it has become aggressively innovative, especially in foods: take the launch of Fruttare, a frozen juice dessert.

And when the slowdown goes into reverse, HUL could be back as the stock to bet on.

(This story was published in Businessworld Issue Dated 28-05-2012)