As Unilever reviews business, HUL eyes recovery

March quarter expected to be better than December quarter for Indian arm, say analysts

Unilever, the world’s second-largest consumer goods company, is undertaking a comprehensive review of its business as it seeks to lift shareholders’ returns. 

Coming after the failed takeover bid by Kraft Heinz last month, the London- and Rotterdam-based firm’s plan includes examining all options pertaining to its portfolio, cutting costs and deploying cash for making medium-sized acquisitions.

The first move in this regard has been made with the Anglo-Dutch major contemplating a $7.4-billion sale of some of its food brands in the butter and margarine categories. This is expected to trim Unilever’s foods division, which contributes 40 per cent to its $56.1-billion overall turnover, of some of its flab. This is critical, say experts, in its drive to improve shareholder value.

Unilever’s moves in many respects are reminiscent, say experts, of what arch-rival and the world’s largest consumer goods company Procter & Gamble had initiated a year ago. At that time, the Cincinnati-based major had exited non-core businesses and aggressively cut costs to shore up margins, echoes of which were felt in India as well.

But in Unilever's case, its decision to review its business globally may have a limited impact on India, say sector analysts.

The reason for this, says Abneesh Roy, senior vice-president at brokerage house Edelweiss, is the nature of the Indian business’s portfolio, especially in areas such as food. "The kind of brands that operate here are different from what works overseas for Unilever in foods," he said. 

"You have soups and jams under Knorr and Kissan, respectively, where the flavours are largely local in nature. Knorr has also been extended into masalas and spices, which are again local in nature and appeal. Yes, in ice creams, Hindustan Unilever has brought international brands such as Magnum into the country. But that is because ice creams as a category can transcend boundaries," he says.

This point is endorsed by G Chokkalingam, founder, Equinomics Research & Advisory. "Unilever's business review is largely aimed at improving growth in markets such as Europe and North America, where it has been sluggish for some time now. While emerging markets have experienced growth pangs in recent quarters, they are still better performers than developed markets for Unilever," he says.

Unilever, for the record, derives 57 per cent of its business from emerging markets. India contributes eight-nine per cent of its overall turnover.

While HUL saw net sales decline 1.2 per cent in the December 2016 quarter due to the ban on high-value notes by the government that quarter, analysts estimate top-line growth for the company should show signs of recovery in the March quarter. They estimate it will hover around the three-four per cent-mark, led mainly by price growth, though volume growth, which had fallen four per cent in the December quarter, should inch up in the March quarter as well.

Operating profit margins, said Naveen Kulkarni, co-head of research at brokerage house PhillipCapital, will continue hovering in the 17-18 per cent range for HUL, while net profit margins will continue to be in the 12-13 per cent bracket.