Understanding Hindustan Unilever:
- In HUL, though major revenue comes from ‘Soaps & Detergent’ segment but major profit come from ‘Personal care’ segment. Combined both accounts for 75+% of revenue and 85+% of EBIT. Beverages and Packaged foods are smaller segments.
- Segment Capital Employed in Soaps and Personal care segment is negative. Its a debt free company, good amount of financing comes from creditors. On account of recent acquisition of Indulekha brand, personal care segment’s capital employed turned positive.
- Around 30% of Company’s sales comes from trading in goods.
- During last considerable number of quarters, volume growth is falling and finally turned negative. Gross margins (average 43%) have also fallen steeply.
- Company is now incurring more Advertising and selling expenses to boost sales (accounts around 23% of sales).
- Most of the cash generated from operation gets paid out as dividend and only a small amount is invested in fixed assets. Most of the investment in fixed asset is met through other income and investments.
- Company generates sales more than 8 times times of Shareholders funds and has maintains Net profit margin of 12+%, producing ROE around 100%. This is more due to support by creditors for goods. Cash conversion cycle is negative and increasing for company’s benefit.
- PFAD (Palm Fatty Acid Distillate), LAB (Linear Alkyl Benzene) and Crude derivatives are HUL’s key raw materials.