Hindustan Unilever Ltd:Annual Report 2023-24 Analysis

Hindustan Unilever Ltd. (HUL): A Comprehensive Overview #

About the Company #

Year of Establishment and Founding History #

Hindustan Unilever Limited (HUL) was established in 1933 as Lever Brothers India Limited. Its roots lie in the British company Lever Brothers, which started selling Sunlight soap in India in 1888. In 1956, it was renamed Hindustan Lever Limited, and finally, in 2007, it became Hindustan Unilever Limited.

Headquarters Location and Global Presence #

HUL’s headquarters are located in Mumbai, India. While primarily focused on the Indian market, HUL benefits from being a subsidiary of Unilever, a global consumer goods giant with operations in numerous countries worldwide.

Company Vision and Mission #

• Vision: To double the size of the business, whilst reducing our environmental footprint and increasing our positive social impact.
• Mission: To add vitality to life. We meet everyday needs for nutrition, hygiene, and personal care with brands that help people feel good, look good and get more out of life.

Key Milestones in Their Growth Journey #

• 1888: Lever Brothers begins selling Sunlight soap in India.
• 1933: Lever Brothers India Limited is established.
• 1956: Renamed Hindustan Lever Limited.
• 1959: Merged with United Traders.
• 1993: Established the Lakmé Unilever joint venture with Tata.
• 2007: Renamed Hindustan Unilever Limited.
• 2010: Launched the Unilever Sustainable Living Plan (USLP).
• 2018: HUL acquires GlaxoSmithKline Consumer Healthcare Limited (Horlicks) in India.

Stock Exchange Listing Details and Market Capitalization #

HUL is listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Market capitalization fluctuates, refer to current financial data for the latest figure.

Recent Financial Performance Highlights #

Refer to current financial reports from HUL to get the latest figures on revenue, profit margins, and key financial ratios.

Management Team and Leadership Structure #

The leadership team consists of the CEO and Managing Director along with executive directors overseeing various departments.

Notable Awards or Recognitions #

HUL has received numerous awards and recognitions for its sustainability efforts, corporate governance, and brand performance. Check recent press releases and annual reports for the most up-to-date accolades.

Their Products #

Complete Product Portfolio with Categories #

HUL’s product portfolio spans several categories:

• Home Care: Laundry detergents (Surf Excel, Rin, Wheel), household cleaners (Domex, Vim).
• Personal Care: Soaps (Lux, Lifebuoy, Dove, Pears), shampoos (Sunsilk, Dove, Clinic Plus), skincare (Fair & Lovely/Glow & Lovely, Ponds, Vaseline), oral care (Pepsodent, Close-Up), deodorants (Axe, Rexona).
• Foods and Refreshments: Tea (Brooke Bond, Lipton), coffee (Bru), ice cream (Kwality Walls), packaged foods (Knorr, Annapurna), health food drinks (Horlicks, Boost).
• Water Purifiers: Pureit.

Flagship or Signature Product Lines #

• Surf Excel: Leading laundry detergent brand in India.
• Lux: Popular soap brand with a focus on beauty and glamour.
• Lifebuoy: Germ protection soap, emphasizing hygiene.
• Brooke Bond: A leading tea brand with a long history in India.
• Horlicks: Health food drink (acquired from GSK).

Quality Certifications and Standards #

HUL maintains various quality certifications and adheres to industry standards for manufacturing processes, product safety, and environmental responsibility.

Recent Product Launches or R&D Initiatives #

HUL regularly introduces new products and reformulates existing ones to meet evolving consumer needs and preferences. Recent launches include extensions of existing product lines with new variants, sustainable packaging initiatives, and products catering to health and wellness trends.

Primary Customers #

Geographic Markets (Domestic vs. International) #

HUL primarily focuses on the Indian domestic market. However, being part of the global Unilever group enables access to international resources and potentially, export opportunities.

Major Client Segments (Agricultural, Industrial, Residential, etc.) #

HUL mainly serves the residential segment with its consumer goods.

Distribution Network and Sales Channels #

HUL has an extensive distribution network in India, reaching both urban and rural areas. This includes:

• Traditional Retail: Kirana stores, local shops.
• Modern Retail: Supermarkets, hypermarkets.
• E-commerce: Online marketplaces and direct-to-consumer channels.

Major Competitors #

Direct Competitors in India and Globally #

• Procter & Gamble (P&G)
• Nestle
• ITC Limited
• Dabur
• Godrej Consumer Products Limited (GCPL)

Market Positioning Strategy #

HUL positions itself as a provider of high-quality consumer goods across various price points, catering to a broad spectrum of consumers. They emphasize product innovation, brand building, and a strong distribution network to maintain a competitive edge.

Future Outlook #

Expansion Plans or Growth Strategy #

HUL focuses on:

• Penetrating Rural Markets: Expanding distribution and introducing affordable products to reach a wider consumer base.
• E-commerce Growth: Investing in online channels and direct-to-consumer initiatives.
• Premiumization: Offering premium products to cater to evolving consumer preferences.

Sustainability Initiatives or ESG Commitments #

HUL has ambitious sustainability goals under the Unilever Sustainable Living Plan (USLP) and its evolved versions, focusing on:

• Reducing Environmental Footprint: Minimizing water usage, waste generation, and carbon emissions.
• Sourcing Sustainable Raw Materials: Promoting responsible sourcing practices.
• Improving Livelihoods: Supporting communities and promoting health and hygiene.

Industry Trends Affecting Their Business #

• Growing E-commerce: Increased online shopping and changing consumer behavior.
• Health and Wellness Trends: Demand for healthier and more natural products.
• Sustainability Concerns: Growing consumer awareness and demand for sustainable products and practices.
• Rural Demand: Increasing purchasing power in rural areas.
• Rising Disposable Incomes: Driving demand for premium products.

Long-Term Vision and Strategic Goals #

HUL’s long-term vision involves sustainable and inclusive growth, building brands with purpose, and creating a positive impact on society and the environment.

Comprehensive Performance Overview #

3-Year Trend Analysis of Key Financial Metrics #

• Turnover: Increased from ₹58,154 crores in FY2022-23 to ₹59,579 crores in FY2023-24, representing a growth of about 3%.
• EBITDA Margin: Increased from 23.4% in FY2022-23 to 23.8% in FY2023-24.
• Profit After Tax (PAT): Increased from ₹9,962 crores in FY2022-23 to ₹10,114 crores in FY2023-24
• Earnings Per Share (EPS): Increased from ₹42.40 in FY2022-23 to ₹43.05 in FY2023-24.
• Return on Capital Employed (ROCE): decreased from 101.9% to 96.3%
• Return on Net Worth (RONW): Decreased slightly, going from 20.1% to 20%.
• Dividend Per Share: Increased from ₹35 in FY2021-22, to ₹42 in FY2023-24.

Business Segment Performance #

• Home Care: FY2023-24 revenue was ₹21,900 crores, up 3% from ₹21,230 Cr in FY2022-23. Volume grew in mid-single digits with negative price growth. EBIT margin was 18%.
• Beauty & Personal Care: FY2023-24 turnover was ₹22,165 crores, 2% higher than the previous year and driven by volume growth. The premium portfolio in Hair Care and Skin Care led growth. The segment’s EBIT margin was 26%.
• Foods & Refreshment: FY2023-24 underlying sales growth was 4%. Nutrition Drinks and Tea maintained market share gains. Food Solutions business witnessed strong double-digit growth. EBIT margin was 19%.
• Others (including consignment sales): Revenue decreased from ₹1,207 crores in FY2022-23 to ₹1,112 crores in FY2023-24.

Major Strategic Initiatives and Their Progress #

• Unmissable Brand Superiority: Product superiority (as per consumer tests) is now 3X that of 2019. More than 75% of incremental media investments were spent on market-making or premium cells.
• Market Making and Premiumisation: Categories like Home Care liquids and premium shampoos have been successfully built. More than 70% of innovation turnover came from market-making or premium cells.
• Reshaping Portfolio: Focus on high-growth spaces, including face cleansing, hair serums, and light moisturizers. The Premium Beauty Business Unit (PBBU) has scaled up brands with an ARR of over ₹100 crores. Beauty and Wellbeing and Personal Care were reorganized as separate business units.
• Leadership in Channels of the Future: Shikhar, the e-B2B app, now covers 1.3 million stores. 30% of demand is captured digitally. Expansion into Modern Trade, e-Commerce, q-Commerce, and D2C channels is ongoing.
• Digital supply chain transformation: The nerve center integrates plan, source, make and deliver, with an approach that enables an intelligent decision making to unlock business value.

Risk Landscape Changes #

• Increased Risk: Accentuation of risks related to climate change and the vulnerability of systems and information (cybersecurity). Focus on mitigating these risks.
• Principal Risks: Brand preference, legal and regulatory compliance, supply chain disruptions, business transformation, macro-economic volatility, plastic packaging, systems & information security, product quality & safety, talent retention, and ethical conduct, climate change were identified.

ESG Initiatives and Metrics #

• Climate Action: 98% reduction in CO2 emissions per tonne of production (from 2008 baseline); 96% of energy consumed in operations is renewable. 74% Recyclable or recycle-ready packaging used.
• Nature Regeneration: Hindustan Unilever Foundation (HUF) created a water potential of over 3.2 trillion liters. 94% of paper and board sourced sustainably for calendar year 2023.
• Waste: 58% reduction of total waste generation, with operations achieving a waste-free world agenda.
• Social Impact: Project Shakti empowered over 200,000 women; Project Prabhat impacted nearly 10 million people.
• ESG Governance: The Board constituted an ESG Committee to oversee ESG practices and risks.

Management Outlook #

• Near-Term: Expects gradual improvement in FMCG demand, supported by above-normal monsoon forecasts and improving macroeconomic indicators.
• Long-Term: Confident in the mid to long-term potential of the Indian FMCG sector due to rising affluence, under-indexed FMCG consumption, and a strong digital infrastructure.
• Focus: Driving competitive volume-led growth, strengthening the core business, accelerating premiumisation, and market development. Maintaining EBITDA margin at current levels, with continued investment in brands and capabilities.

Detailed Analysis #

Financial Position Analysis of Hindustan Unilever Limited #

Balance Sheet Analysis: 3-Year Comparative (Consolidated) #

(All amounts in ₹ crores)

Significant Changes in Major Line Items (YoY) #

• Current Assets: Increased by 25.5% in FY 2023-24, primarily due to higher investments and increase in cash & bank balances.
• Non-Current Liabilities: Increased by 34.8% primarily due to an increase in other financial liabilities and current tax liabilities.

Working Capital Trends #

• Working Capital has increased significantly, driven by the growth in current assets, particularly cash, investments, and trade receivables.

Asset Quality Metrics #

• Inventory Turnover Ratio (FY 2023-24): 15.2 (Sales / Average Inventory)
• Debtors Turnover (FY 2023-24): 22.0

Debt Structure and Maturity Profile #

• Debt equity ratio is 0.0.
• No long term borrowings.

Maturity Analysis of Lease Liabilities (Undiscounted) #

Off-Balance Sheet Items #

Contingent Liabilities: #

• Income tax matters: ₹2,081 crores
• Indirect Tax matters: ₹579 crores
• Legal and Other Matters: ₹281 crores

Hindustan Unilever Limited (HUL) Financial Analysis - FY24 #

Revenue Breakdown by Segment/Geography with Growth Rates #

• Home Care: FY24 revenue was ₹21,900 crores, growing 3% (Underlying Volume Growth mid-single digit, negative price growth) from ₹21,230 crores in FY23. Water business grew in the mid-single digit.
• Beauty & Personal Care: FY24 revenue was ₹22,165 crores, growing 2% from ₹21,831 crores in FY23, driven by volume.
• Foods & Refreshment: FY24 revenue was ₹15,292 crores, with an Underlying Sales Growth of 4% from ₹14,876 crores in FY23.
• Others (including Exports, Consignment, etc.): FY24 revenue was ₹1,112 crores, a decline from ₹1,207 crores in FY23.
• Geographical Revenue
  • India: ₹59,629 crores
  • Areas outside of India: ₹2,267 crores
• Total Group Revenue:
  • FY24: ₹61,896 crores
  • Growth of around 3% from ₹59,144 crores

Cost Structure Analysis #

• Cost of Materials Consumed: Decreased to ₹17,791 crores in FY24 from ₹19,229 crores in FY23.
• Purchases of Stock-in-Trade: Decreased to ₹10,514 crores in FY24 from ₹11,579 crores in FY23.
• Employee Benefits Expense: Increased to ₹3,009 crores in FY24 from ₹2,854 crores in FY23.
• Finance Costs: Increased to ₹334 crores in FY24 from ₹114 crores in FY23.
• Depreciation and Amortisation: Increased to ₹1,216 crores in FY24 from ₹1,137 crores in FY23.
• Other Expenses: Increased to ₹14,464 crores in FY24 from ₹11,862 crores in FY23.
• Advertising and promotion: Increased to ₹6,489 crores in FY24 from ₹4,907 crores in FY23.

Margin Analysis #

• EBITDA Margin: FY24 remained healthy at 23.8%, up by 40 basis points year-on-year.
• Home Care Segment Margin: FY24 at 18%.
• Beauty and Personal Care Segment Margin: FY24 at 26%.
• Foods and Refreshment Segment Margin: FY24 at 19%.
• Net Profit Margin: FY24 at 17.0%, a decrease of 0.1% year-over-year.
• PAT/Turnover (%): 17.0 for FY 2023-2024, 17.1 for FY 2022-2023.

Non-Recurring Items #

• Exceptional Items (Net): FY24 showed income of ₹6 crores, compared to an expense of ₹(64) crores in FY23. FY23 included restructuring costs, and acquisition and disposal-related costs.

EPS Analysis #

• Basic EPS: ₹43.05 for FY24, up from ₹42.40 in FY23, growth of 2%.
• Diluted EPS: ₹43.05 for FY24, up from ₹42.40 in FY23, growth of 2%.

Cash Flow and Liquidity Analysis of Hindustan Unilever Limited #

Operating, Investing, and Free Cash Flow #

Operating Cash Flow (OCF) #

Increased to ₹15,469 crores in FY 2023-24 from ₹9,991 crores in FY 2022-23, primarily driven by working capital changes and an increase in profit.

Investing Cash Flow (ICF) #

Net cash outflow was ₹5,324 crores in FY 2023-24, compared to ₹1,494 crores in FY 2022-23. This is mainly due to the higher purchase of property, plant, and equipment.

Free Cash Flow (FCF) #

No FCF calculation possible due to the non-availability of all required components.

Working Capital Management Efficiency #

Inventory Turnover Ratio #

Increased to 15.2 times in FY 2023-24 from 14.7 times in FY 2022-23, suggesting improved inventory management.

Debtors Turnover Ratio #

Decreased to 22.0 times in FY 2023-24 from 24.9 times in FY 2022-23, which could be attributed to lower credit sales and receivables.

Trade Payables Turnover Ratio #

Decreased to 4.3 times in FY 2023-24 from 4.7 times in FY 2022-23, due to decreased volume and deflation of commodities.

Dividend and Share Buyback Trends #

Dividend #

Total dividend for FY 2023-24 was ₹42 per share (₹18 interim and ₹24 proposed final), an 8% increase from FY 2022-23.

Dividend Payout Ratio #

The payout ratio remained at 98%.

Share Buyback #

The document does not mention any share buyback activity during the periods.

Debt Service Coverage #

Debt Service Coverage Ratio #

23.6 for FY 2023-24, compared to 21.8 in FY 2022-23, indicating the group is able to cover its current interest expenses.

Liquidity Position #

Current Ratio #

Increased to 1.6 in FY 2023-24 from 1.4 in FY 2022-23, indicating improved short-term liquidity.

Cash and Bank Balances #

₹7,216 crores as on March 31, 2024, up from ₹4,422 crores.

Hindustan Unilever Limited (HUL) Financial Analysis #

Profitability Ratios (3-Year Trends) #

Return on Equity (ROE) #

• FY 2023-24: 20.0%
• FY 2022-23: 20.1%
• FY 2021-22: 18.6%
• ROE has remained relatively stable, showing consistent profitability.

Return on Capital Employed (ROCE) #

• FY 2023-24: 96.3%
• FY 2022-23: 101.9%
• FY 2021-22: 107.8%
• ROCE has slightly declined year on year, suggesting a decrease of return generated using the debt and equity.

EBITDA Margin #

• FY 23-24: 23.8%
• FY 22-23: 23.4%
• FY 21-22: 24.6%
• The EBITDA margin has improved from FY2022-2023 but it is less than FY 2021-22.

Net Profit Margin #

• FY 2023-24: 17.0%
• FY 2022-23: 17.1%
• FY 2021-22: 17.5%
• Net Profit Margins are consistent and stable.

Liquidity Metrics #

Current Ratio #

• FY 2023-24: 1.6
• FY 2022-23: 1.4
• The current ratio increased, demonstrating enhanced short-term solvency.

Cash Ratio #

• Cash and Bank Balances is ₹7,216, that is around 57% of current liabilities.

Efficiency Ratios #

Inventory Turnover #

• FY 2023-24: 15.2
• FY 2022-23: 14.7
• Inventory turnover shows slight improvement.

Receivables Turnover #

• FY 2023-24: 22
• FY 2022-23: 24.9
• Debtors turnover shows a slight decline.

Leverage Metrics #

Debt/Equity Ratio #

• FY 2023-24: 0
• FY 2022-23: 0
• HUL reported that it has no debt, making it a debt-free company.

Interest Coverage Ratio #

• FY 2023-24: 118.3
• FY 2022-23: 143.9
• The interest coverage ratio, though reduced from last year is still very high, indicating strong ability to service interest obligations.

Working Capital Ratios #

Working Capital Turnover Ratio #

• FY 2023-24: 7.6
• FY 2022-23: 13.0
• The Working Capital Turnover has dropped, due to the increase in current assets

Hindustan Unilever Limited (HUL) Segment Performance Analysis FY 2023-24 #

Home Care #

Revenue and Profitability #

FY 2023-24 revenue was ₹21,900 crores, up from ₹21,230 crores in FY 2022-23, a growth of approximately 3%. EBIT was ₹4,033 crores with an EBIT margin of 18%.

Market Share and Competitive Position #

Surf Excel continued to strengthen the core, with market share and penetration gains. Vim liquids saw robust volume growth and maintained its position as market leader.

Key Products/Services Performance #

Fabric Wash and Household Care showed volume growth in mid-single digit. Premium portfolio (premium washing powders, liquids, dishwash liquids) demonstrated strong growth. Surf excel liquid launched a new stain removal proposition. Vim liquid was relaunched.

Geographic Distribution and Market Penetration #

Leveraged the ‘Winning in Many Indias’ (WiMI) strategy for tailored products, addressing specific consumer needs based on geography, water quality, weather patterns, and washing methods.

Operational Efficiency #

Single minute changeovers and online changeover lines were instituted at multiple manufacturing sites to enhance agility.

Growth Initiatives and Challenges #

Focus is on delivering consumer value, operational excellence, growing the core. There is expansion into premium formats such as liquids and home trials. Collaborations are set up with partners on emissions reduction and use of recycled plastics.

Beauty and Personal Care #

Revenue and Profitability #

FY 2023-24 turnover was ₹22,165 crores, a 2% growth driven by volume. EBIT was ₹5,802 crores with an EBIT margin of 26%.

Market Share and Competitive Position #

The premium portfolio in Hair Care and Skin Care led growth. Mass segment volume recovery was subdued.

Key Products/Services Performance #

Lakmé introduced new formats (MultiSlayer Face Sticks, Invisible Sunstick). Bodywash grew in high double-digits. Sun care and light moisturizers also had double digit growth. Clinic Plus crossed ₹2,000 crore turnover mark.

Geographic Distribution and Market Penetration #

The WiMI strategy was leveraged to customize portfolio based on consumer preferences and climate conditions.

Operational Efficiency #

100% sachet recyclability has been achieved in hair care. Post-consumer recycled (PCR) plastic is used in packaging of Vaseline, TRESemmé, and Sunsilk.

Growth Initiatives and Challenges #

Transitioned to two independent business units (Beauty & Wellbeing and Personal Care). Focus is on premiumization, scaling up digital first brands and curated in-store experiences. Launched the ‘Beauty Collective’ to strengthen partnerships with e-Commerce and Modern Trade customers.

Foods and Refreshment #

Revenue and Profitability #

FY 2023-24 Underlying Sales Growth was 4%. EBIT was ₹2,851 crores with an EBIT margin of 19%.

Market Share and Competitive Position #

Nutrition Drinks (Horlicks & Boost) and Tea gained market share. Food Solutions business saw high double-digit growth. Coffee also has grown in double digits, ahead of other categories, driven by pricing.

Key Products/Services Performance #

Horlicks was relaunched with new packaging. Brooke Bond Red Label extended its campaign. Bru coffee was relaunched with enhanced taste and aroma. Ice Cream launched multiple innovations. Knorr launched Korean noodles.

Geographic Distribution #

Distribution leveraged the WiMI strategy by customizing tea blends based on consumer tastes.

Operational Efficiency #

The focus is on offering positive nutrition by reducing sugar and calories, with 92% of the F&R portfolio meeting Unilever’s Science-based Nutrition Criterion.

Growth Initiatives and Challenges #

Premium portfolio growth was driven by products like Bru Freeze Dried Coffee and Knorr Korean meal pots. Facing challenges due to inflation or sustained high prices for Coffee and Nutrition Drinks.

Other Segments #

Revenue and Profitability #

This segment, including exports and consignment sales, recorded a revenue of ₹1,112 crores and an EBIT of ₹407 crores for FY 2023-24.

Hindustan Unilever Limited (HUL) Risk Analysis #

Home Care Segment #

Strategic Risks: #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies: Focus on brand superiority, innovation in premium formats (liquids, smart shots), and strategic partnerships with retailers.
• Control Effectiveness: Moderate. Market share gains in specific categories (e.g., Vim liquids) but overall segment growth is moderate.
• Potential Financial Impact: Revenue under-performance versus premium segments, pressure on margins if unable to pass on price increases.

Operational Risks: #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Localization of material procurement, identification of alternative suppliers, implementation of single minute changeovers and nano factories for agility.
• Control Effectiveness: Moderate. The Company achieved “End-to-End Lighthouse” factory status, indicating operational improvements.
• Potential Financial Impact: Increased production costs, potential inventory write-offs.

Financial Risks: #

• Severity: Medium
• Likelihood: High
• Trend: Stable, but mixed
• Mitigation Strategies: Dynamic pricing, cost management through the “Nakshatra” supply chain transformation program.
• Control Effectiveness: Moderate. Achieved volume growth but with negative price growth.
• Potential Financial Impact: Margin pressure, lower profitability if price increases cannot offset commodity inflation.

Compliance/Regulatory Risks: #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: “Clean Future Summit” to foster industry commitments, collaboration with partners for near-zero emissions soda ash, use of recycled plastics in packaging.
• Control Effectiveness: Moderate. Achieved progress on recycled plastics in packaging.
• Potential Financial Impact: Increased compliance costs, potential penalties for non-compliance.

Emerging Risks: #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Piloted low green house gasses soda ash, supplier climate program.
• Control Effectiveness: Moderate
• Potential Financial Impact: Increased costs, reputational damage.

Beauty and Personal Care Segment #

Strategic Risks: #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies: Portfolio transformation to high-growth spaces, innovation in formats, digital marketing, and influencer campaigns.
• Control Effectiveness: Moderate. Positive growth in the premium portfolio, but mass segment recovery is slow.
• Potential Financial Impact: Subdued volume growth, particularly in the mass segment.

Operational Risks: #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Focus on sustainable sourcing, circular plastic economy initiatives.
• Control Effectiveness: Moderate. Progress in using recycled plastics in packaging.
• Potential Financial Impact: Fluctuations in input costs.

Financial Risks: #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Stepping up investments in brands and innovations, enhancing product superiority.
• Control Effectiveness: Moderate. Early signs of improvement in brand power.
• Potential Financial Impact: Margin pressure if cost savings and premiumization do not offset pricing pressure.

Compliance/Regulatory Risks: #

• Severity: Medium
• Likelihood: Low
• Trend: Increasing
• Mitigation Strategies: Responsible sourcing.
• Control Effectiveness: Moderate
• Potential Financial Impact: Fines.

Emerging Risks: #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: Establishing strategic partnerships.
• Control Effectiveness: Moderate
• Potential Financial Impact: Reduced revenue.

Foods and Refreshment Segment #

Strategic Risks: #

• Severity: High
• Likelihood: High
• Trend: Increasing
• Mitigation Strategies: Strengthening core brands, premiumization, product expansion (e.g., Freeze Dried Coffee, Korean meal pots), and market development.
• Control Effectiveness: Moderate. Growth in tea and nutrition drinks, but ice cream faced headwinds.
• Potential Financial Impact: Reduced Market Share

Operational Risks: #

• Severity: Medium
• Likelihood: Medium
• Trend: Stable
• Mitigation Strategies: Sustainable sourcing of tea and tomatoes.
• Control Effectiveness: Moderate. Sourced 79% of tea and 81% of tomatoes sustainably.
• Potential Financial Impact: Higher Costs of goods

Financial Risks: #

• Severity: High
• Likelihood: High
• Trend: Decreasing
• Mitigation Strategies: Focus on value delivery, market development, and portfolio expansion.
• Control Effectiveness: Moderate. Competitive growth, but margins could be pressured.
• Potential Financial Impact: Reduce Profit.

Compliance/Regulatory Risks: #

• Severity: Medium
• Likelihood: Low
• Trend: Increasing
• Mitigation Strategies: Reducing sugar and calories in products, 92% of F&R portfolio meets Unilever’s science-based nutrition criteria.
• Control Effectiveness: High
• Potential Financial Impact: Compliance costs, potential for product reformulations.

Emerging Risks: #

• Severity: Medium
• Likelihood: Low
• Trend: Increasing
• Mitigation Strategies: Reduction of sugar and positive nutrition.
• Control Effectiveness: Moderate
• Potential Financial Impact: Reduced revenue.

Company Wide - Applicable Across All Segments #

Cybersecurity and Data Privacy: #

• Severity: High
• Likelihood: Medium, increasing with digital transformation
• Trend: Increasing
• Mitigation Strategies: Cyber Security Risk Management Framework aligned with industry standards, dedicated Chief Information Security Officer (CISO), employee training, data privacy program.
• Control Effectiveness: Moderate. No reported breaches, but the evolving threat landscape requires constant vigilance.
• Potential Financial Impact: Significant financial penalties, reputational damage, operational disruption.

Macro-Economic Volatility: #

• Severity: Medium
• Likelihood: High
• Trend: Stable
• Mitigation Strategies: Flexible business model allowing to respond to changing consumer needs.
• Control Effectiveness: Moderate
• Potential Financial Impact: Fluctuation in profit.

Talent Management: #

• Severity: Medium
• Likelihood: Medium
• Trend: Increasing
• Mitigation Strategies: 1,00,000 + hours of training and upskilling, future fit skills focus.
• Control Effectiveness: Moderate. Retained #1 Employer of Choice, but employee engagement and attrition rates need continuous monitoring.
• Potential Financial Impact: Increased hiring/training costs, potential loss of productivity.

Hindustan Unilever Limited (HUL) - Segment-Wise Financial Analysis #

Home Care #

Long-Term Strategic Goals and Progress #

The segment aims for exceptional consumer experiences with brand superiority and innovations. The segment is committed to providing the right price-value equation, in the context of commodity cycles, to drive competitive growth.

Competitive Advantages and Market Positioning #

HUL holds a stable of leading brands (Surf excel, Wheel, Rin, Comfort, Vim, Domex). Surf excel has crossed the $1 billion turnover mark. Vim maintained its market leadership with volume and penetration gains.

Innovation Initiatives and R&D Effectiveness #

The segment focuses on science and technology for innovations. Initiatives include product relaunches (Vim liquids), format disruptions (Smart shots laundry pods), and sustainable packaging (recycled plastics in Comfort, Rin Liquid, and Vim liquid). R&D efforts are targeted toward a cleaner future, with collaborations on near-zero emission soda ash production.

Management’s Track Record in Execution #

FY 2023-24 segment revenue growth of 3% was achieved, on a very strong base of 28% in FY 2022-23. Premium portfolio, consisting of washing liquids and dishwash liquids, continued to clock strong growths.

Organizational Changes and Their Impact #

Re-organization of the Home care segment to supply chain transformations across verticals of Plan, Source, Make and Deliver.

Capital Allocation Strategy #

The segment continues the journey towards Clean Future, becoming a more sustainable and environmentally friendly segment, in alignment with our climate action goals.

Beauty and Personal Care #

Long-Term Strategic Goals and Progress #

Aims to progress beyond meeting consumer needs with aspirational and purposeful brands. Focuses on growing the core, market making, and premiumization, and winning in channels of the future.

Competitive Advantages and Market Positioning #

HUL is India’s largest Beauty & Personal Care (BPC) business. It holds a portfolio spanning seven categories and has contemporary core brands. Lifebuoy is the No. 1 soap brand in India.

Innovation Initiatives and R&D Effectiveness #

Significant transformations are led across key brands (Lakmé, Vaseline) with product and packaging refreshes and launches into new demand spaces. The segment has ventured into on-trend formats (face and hair serums) and strengthened its presence in fast-growing demand spaces (sun care, light moisturization). 50+ new products have been launched.

Organizational Changes and Their Impact #

The Company has transitioned into 2 independent business units namely Beauty & Wellbeing and Personal Care from 1st April 2024.

Foods and Refreshment #

Long-Term Strategic Goals and Progress #

Aims to be a ‘World-class Force for Good’ through iconic brands, addressing evolving consumer needs with a focus on health and sustainability.

Competitive Advantages and Market Positioning #

The segment holds leading brands (Brooke Bond, Lipton, Horlicks, Boost, Bru, Kissan, Knorr, Hellmann’s, Kwality Wall’s, Magnum). Tea and Nutrition Drinks are gaining market share.

Innovation Initiatives and R&D Effectiveness #

Innovations are driven by consumer insights, focusing on taste, health, and sustainability. R&D efforts include expanding the Green Tea portfolio, premium Freeze Dried Coffee range (Bru Gold), and condition-specific nutrition drinks (Horlicks Strength Plus and Growth Plus).

Market Making and Premiumisation #

Accelerated premium portfolio with launches like Bru Gold Vanilla, Caramel, and Hazelnut flavors, and ready-to-drink cold coffee. Premium Ice Cream accelerates ahead of the category.

Capital Allocation Strategy #

Over 90% of the Nutrition Drinks portfolio contains less than one teaspoon of added sugar per serving. 92% of the F&R portfolio meets Unilever’s science-based nutrition criterion, with 100% of Ice Creams containing less than 250 kcal and 22 grams of total sugar per serve.

ESG Performance of Hindustan Unilever Limited #

Environmental Metrics and Targets #

• Home Care: Collaborating with partners on climate action goals, including a pilot production of near-zero emissions synthetic soda ash.
• Foods & Refreshment: Sourced 79% of tea and 81% of tomatoes sustainably in the calendar year 2023. 64% of packaging is recycle-ready.
• Across Operations (Company-wide):
  • 98% reduction in Scope 1 & 2 emissions (kg/tonne of production) vs. 2008 baseline.
  • 45% reduction in total energy consumption (GJ/tonne of production) from factories vs. 2008 baseline.
  • 47% reduction in total water consumption (Cubic metre/tonne of production) from factories vs. 2008 baseline.
  • 58% reduction in total waste generated (kg/tonne of production) from factories vs. 2008 baseline.
  • Achieved 96% renewable energy consumption.
  • Over 97% deforestation-free supply chain in palm oil, paper and board, tea, soy, and cocoa.
  • 74% reusable, recyclable, or compostable plastic packaging used.

Social Responsibility Programs #

• Company-wide:
  • Project Shakti: Empowered over 200,000 women in rural areas, with 70% using the Shikhar app.
  • Prabhat initiative: Positively impacted nearly 10 million people, focusing on economic empowerment, environment, health & nutrition.
  • Suvidha: Provided over 400,000 people access to safe hygiene and sanitation.
  • Swasthya Curriculum: Educated 5 million children on health and hygiene practices since 2018.
    • Asha Daan: Maintained and provided upkeep of the premises of Asha Daan.
    • Prabhat: Trained over one lakh individuals through 18 Livelihood Centres.
    • Prabhat’s farm based value chain: More than 24,000 farmers have positively benefited.
    • Dove Self-Esteem Programme: Reached over 69 million lives globally.
  • Ahilya initiative: 1,400+ women in frontline General Trade salesforce.

Governance Structure and Effectiveness #

• Company-wide:
  • Board of Directors: 100% of Board Committees led by Independent Directors. 100% of members in the Audit, Nomination and Remuneration, and Corporate Social Responsibility Committees are Independent Directors.
  • ESG Committee: Chaired by an Independent Director, oversees ESG practices and risks. Interacts with Risk Management and Audit Committees.
  • Risk Management Committee: Assists the Board in monitoring and reviewing the Risk Management Policy; formal bi-annual review of risks.
  • Audit Committee: Responsible for risk identification, minimization, and mitigation.
  • Code of Business Principles: 100% of employees trained.
  • Business Integrity Framework: Code of Business Principles and Key policies includes Whistle Blower Policy, Policy on Related Party Transactions, Gender Neutral POSH Policy and Affirmative Action Policy.

Sustainability Investments and ROI #

• Company-wide:
  • CSR spends: ₹234 crores.
• Water conservation (Hindustan Unilever Foundation): Created a cumulative and collective water potential of over 3.2 trillion liters.

ESG Ratings and Peer Comparison #

• Company-wide:
  • S&P Global Sustainable: #1 in personal products sector in India and among the top 10% of companies globally.
  • MSCI ESG Ratings: Upgraded from ‘A’ to ‘AA’.
  • CDP: Leadership across all 3 categories i.e. Climate, Water and Forest.
    • LSEG ESG ratings: Ranked #1 in India in the Personal & Household Products category.
    • Sustainalytics : Ranked #11 globally in the Household product category.

Regulatory Compliance and Future Preparations #

• Company-wide:
  • Responsible Partner Policy (RPP): Reflects dedication to responsible and sustainable business practices; >99% of suppliers trained in ESG awareness.
    • Compliant with Extended Producer Responsibility (EPR) and Plastic Waste Management Rules.
    • Adhere to policies, such as Affirmative Action Policy, Saftey and Health Policy, Environment Policy.
    • Fully adopted the five privacy fundamentals, established a Privacy and Data Governance Office, deployed Privacy Risk Assessment, and established a dedicated privacy grievance redressal mechanism.
    • Continuously evolve and improve the privacy programme.

Hindustan Unilever Limited (FY2023-24) Segment-Wise Financial Analysis #

Home Care #

Management Guidance and Assumptions #

Exceptional consumer experiences with unmissable brand superiority and innovations are to be delivered through a focus on science and technology. Right price-value equation is critical to drive competitive growth.

Market Growth Forecasts #

Volume growth is driven by Fabric and Household Care in mid-single-digit with a negative price growth. Water business grew in the mid-single digits.

Planned Strategic Initiatives #

• Weave purpose and brand superiority into core values.
• Address specific consumer needs arising from water quality, geographical variations, weather patterns, and washing methods, guided by the ‘Winning in Many Indias’ (WiMI) strategy.
• Upgrade consumers and premiumize portfolio.
• Transition consumers from mass detergent bars and powders to premium options, and from premium powders to liquid detergents.
• Further, expand their routine and introduce them to complimentary products like Comfort fabric conditioners.
• Innovate to deliver channel targeted offerings.
• Scale up future formats like liquid detergents, through strategic partnerships, collaborating to create growth plans and shopper events.
• Partner to drive expansion of the Home Care category profitably, with a focus on q-commerce.
• Collaborate with partners towards a cleaner future on emission reduction.
• Continue progress towards innovative designs and new structure to reduce virgin plastic consumption.

Capital Expenditure Plans #

Not explicitly stated, but implied through investments in new manufacturing technologies (e.g., single-minute changeovers, online changeover lines, nano factories).

Efficiency Improvement Targets #

Implement single-minute changeovers and online changeover lines. Reduce batch size of production via nano-factories, enabling more frequent production of SKUs while maintaining and improving efficiency.

Potential Challenges and Opportunities #

Commodity price cycles and ensuring the right price-value equation. Competition. Opportunities exist in premiumisation and market development, especially in liquids and new formats.

Beauty and Personal Care (BPC) #

Management Guidance and Assumptions #

Focus on transforming the portfolio towards high-growth spaces. Concentrating efforts on meeting evolving consumer needs with aspirational, purposeful brands.

Market Growth Forecasts #

BPC turnover grew by 2%, driven by volume growth. Premium portfolio within Hair Care and Skin Care led growth. Mass segment experienced subdued volume recovery due to high cumulative inflation and below-par agricultural output.

Planned Strategic Initiatives #

• Step-up investments behind brands and innovation.
• Enhance product superiority, keeping brands relevant, accessible, aspirational, and purposeful.
• Expand into new demand spaces and formats of the future.
• Leverage the ‘Winning in Many Indias’ (WiMI) strategy to curate a sharply targeted portfolio.
• Pivot portfolio to develop the market for emerging demand spaces and formats.
• Scale up future formats.
• Increase presence in high-affinity beauty channels, with a specific focus on digital media and influencer marketing.
• Enhance in-store experience.
• Redefine the beauty landscape and excel in Channels of the Future.
• Lead every platform, deliver unparalleled consumer experiences, and pioneer with innovative launches at all beauty-shopper touchpoints to deliver market leading growth.

Capital Expenditure Plans #

Invest in route-to-market and in-store execution interventions, particularly in Pharma and Beauty channels. Strategic investments in OZiva and Wellbeing Nutrition represent advancements in the Health and Wellbeing segment.

Efficiency Improvement Targets #

Not explicitly stated. Focus on scaling digital capabilities.

Potential Challenges and Opportunities #

Discretionary nature of the category makes it susceptible to macroeconomic factors. Opportunities in premiumisation, driven by changing lifestyles, increasing incomes, and exposure to global trends, low penetration of multiple categories.

Foods and Refreshment (F&R) #

Management Guidance and Assumptions #

Address evolving consumer needs while making sustainable choices. Focus on providing better value to consumers, market development, and portfolio expansion.

Market Growth Forecasts #

Underlying Sales Growth of 4%. Nutrition Drinks and Tea gained market share. Food Solutions Business saw strong high double-digit growth. Ice Cream faced weather-related headwinds. Coffee accelerated ahead of other categories, at double digit growth, driven by pricing.

Planned Strategic Initiatives #

• Strengthen core brands, keeping them contemporary through purposeful communications.
• Deliver unmissably superior product.
• Widen market share in Tea.
• Continue to gain penetration and share in Nutrition Drinks.
• Continue sustainable agricultural practices.
• Expand premium portfolio, leading growth for the category.
• Leverage channels of the future, designing products exclusively for these channels.

Capital Expenditure Plans #

Not explicitly stated, implied in the continuous investment in sustainable agriculture and product development.

Efficiency Improvement Targets #

Enhance formulation and reduce added sugar in Nutrition Drinks. 92% of F&R portfolio meets Unilever’s science-based nutrition criterion.

Potential Challenges and Opportunities #

Inflation/sustained high prices, particularly in Coffee and Nutrition Drinks, consumer downgrading in Tea. Opportunities in premium segment, with consumers seeking new experiences and differentiated benefits, ready-to-eat food delivery and eating out.

Overall Outlook for HUL #

Management Guidance and Assumptions #

“In the near term, we expect FMCG demand to continue improving gradually. Forecast of above normal monsoons and improving macro-economic indicators augur well. In this context, our focus remains on driving competitive volume led growth across our business.”

Potential Challenges #

• Commodity price volatility and Cumulative inflation.

Opportunities #

• Headroom to grow, given low penetration of multiple categories.
• Premiumisation trend driven by growing affluence.

Audit and Compliance Analysis of Hindustan Unilever Limited #

Auditor’s Opinion and Qualifications #

• The Statutory Auditors, M/s. B S R & Co. LLP, issued an unmodified opinion on the standalone and consolidated financial statements.
• The Independent Practitioners provided a reasonable assurance opinion on BRSR core attributes.
• The Secretarial Audit Report does not contain any qualification, reservation, or adverse remark.
• Certain instances were identified where the audit trail was deficient.
• There are certain qualifications regarding accounting books and other matters by the branch auditors of the holding company’s subsidiaries that operate outside of India.

Key Accounting Policies and Changes #

• The company used the ‘pooling of interest method’ for business combinations under common control.
• The company used the acquisition accounting method for the merger with GlaxoSmithKline Consumer Healthcare Limited.
• No new accounting standards or amendments to existing standards were notified by the Ministry of Corporate Affairs (MCA) that were applicable for FY 2023-24. Accounting policies were applied consistently across all periods presented.
• Measurement of certain accounts involves significant management judgment and estimates.

Internal Control Effectiveness #

• The Company has an internal financial control framework established in accordance with the Committee of Sponsoring Organisation (COSO) framework.
• Internal financial controls were deemed adequate and operating effectively.
• There were no major concerns reported in reference to internal financial controls by the Independent Auditor.

Regulatory Compliance Status #

• The Company complied with all applicable provisions of Secretarial Standards SS-1 and SS-2.
• The Company complied with the conditions of Corporate Governance as stipulated under the Listing Regulations.
• The Company is in compliance with applicable environmental laws and regulations.
• The Company’s operations and offices comply with all applicable statutory and legal requirements.
• The company has submitted compliance reports on corporate governance and confirmed its compliance to relevant authorities.

Legal Proceedings and their Potential Impact #

• The Company is involved in various legal proceedings relating to direct and indirect tax matters, and other claims arising in the ordinary course of business.
• There were no proceedings, made or pending under the Insolvency and Bankruptcy Code, 2016, during the financial year.

Related Party Transactions #

• All related party transactions (RPTs) were in the ordinary course of business and on an arm’s length basis.
• No material RPTs were entered into during the year.
• Prior omnibus approval is obtained for RPTs on a quarterly basis for transactions that are repetitive in nature.
• RPTs are subject to independent review.

Subsequent Events #

• The National Company Law Tribunal, Mumbai Bench approved the voluntary liquidation of Bhavishya Alliance Child Nutrition Initiatives, effective December 27th, 2023.
• The Scheme for merger of Pond’s Exports Limited and Jamnagar Properties Private Limited into Unilever India Exports Limited was approved and made effective February 13th, 2024.

Analysis of Accounting Quality and Regulatory Risk Assessment #

• Accounting Quality: The unmodified audit opinions, consistent application of accounting policies, and comprehensive disclosure of related party transactions indicate a high level of accounting quality. The internal control framework, aligned with COSO, supports the reliability of financial reporting.
• Regulatory Risk Assessment: The Company demonstrates a robust compliance framework across various regulations. Compliance with secretarial standards and timely submission of compliance reports reflects good governance practices.