FY17 Analyst meet gives us the confidence that from gaining market share across all distribution channels, to scouting for new growth categories, Natural, Baby Care et al, Hindustan Unilever appears poised to dominate the Indian consumption landscape. Reiterate as a top-pick and maintain Buy.
Premiumisation trend is playing out, both in urban and rural India and across categories. A good monsoon could move the sentiment positive. Rural growth has picked up but is still below the urban growth rates, growth in rural was 2x of urban till about a couple of years back.
Indulekha brand has been well received as well. HUL would participate in the hair oil market through Ayush and Indulekha brands, Dove Elixir brand received lukewarm response.
Citra brand would be launched in the premium skin care segment. Dove brand would be extended in the baby care segment and rolled out nationally. Specialised & organised baby care market is currently estimated at c.`10 billion, key competitors Johnson & Johnson and Himalaya. We believe Hindustan Unilever has potential to win in these categories through a superior product offering followed by a robust distribution network, which the competitors would find it hard to match.
HUL is commanding superior market share in all formats of distribution. If general trade market share is indexed to 100, then market share in modern trade stands at 115-120 levels while market share in the e-commerce channel would be somewhere close to 135 levels. Superior market share in the e-commerce business is attributed to a superior product mix and a robust digital presence (led by more content marketing).
Purchases through mobiles have picked up recently. We believe general trade channel faces competition from a plethora of local and regional brands, which have not made a presence on online channels.
HUL is GST ready; however, feels that the ecosystem is not geared fully and there could be supply side disruptions.
Focus on cost savings would continue, costs worth 5% of sales saved currently, vs. c.3-4% earlier and some of these savings would be invested back in the company. Company would deliberate more direct distribution if wholesale channel woes continue.