The chief executive of Hindustan Unilever said he believes India, the consumer group’s largest market by volume, will overtake the United States to become the largest by value.
“It’s clear that the day will come when HUL will be Unilever’s biggest business,” said Sanjiv Mehta, adding that he was unable to give a timeframe. The Indian subsidiary currently accounts for about 10.7% of the Unilever Group’s turnover, according to the company’s data, making him one of the best-performing divisions.
Unilever’s portfolio leans toward emerging markets, with only the US outperforming the Indian market in terms of percentage of sales. Unilever has identified the US and India as key markets for growth, along with China.
Shares in India’s largest consumer group have surged 14% this year to 2,692 rupees ($33), approaching the 2,800 rupee record during the 2021 bull market.
Hindustan Unilever currently has a market capitalization of $78 billion, representing 69% of parent company Unilever’s market capitalization of $113 billion. Unilever owns over 60% of his listed business in India. In India, Hindustan will compete with Nestlé India, and later this year he will compete for Mukesh Ambani’s Reliance Retail and the loyalty of his 1.4 billion customers.
Hindustan is one of Unilever’s best-performing emerging markets businesses, said Jefferies consumer goods analyst Martin Deboo, adding that the company is the “jewel in the crown.”
Mehta’s comments come at a tumultuous time for Unilever. Chief Executive Alan Jope has announced that he will retire at the end of 2023 after failing to bid for GSK’s consumer health division and following investor frustration over poor performance. Shareholders have been watching closely how inflation affects Unilever’s portfolio. Unilever’s portfolio is focused on emerging markets, with budgets extending to luxury goods.
Inflation is also putting pressure on Indian shoppers. For Indians on limited incomes, a 7% inflation rate “eats into their wallets fairly quickly. It’s stressful,” says Mehta.
Unilever’s subsidiary sells household products from soaps to soups in India, one of the world’s fastest growing major economies. According to the World Bank, India’s per capita GDP in 2021 will be her $2,277, just below neighbor Bangladesh and well behind China’s $12,556.
Hindustan Unilever’s sales rose 6% year-over-year in the three months to June, bucking industry trends, even as Indian consumers are feeling the pinch. Analysts at Japan’s Nomura Bank said the market size of products sold in India fell by 6% over the same period.
Hindustan Unilever’s unaudited turnover for the three months to June was Rs 140 billion, up 19% year-on-year.
Hindustan Unilever has increased the prices of its products, from tea to detergent, but in order to retain customers, the company has cut profits on some products, such as shampoo sachets, according to Mehta.
“We can reduce the size [of the sachets] Too little and you can’t wash your customers’ hair, says Mehta. “I don’t want to see them go to other brands, so it hits the margins.”
Conversely, consumers with higher incomes are buying larger packs to get the best value. We see two trends happening:
India represents a bright spot in South Asia, with debt crises erupting in Sri Lanka, Pakistan and most recently Bangladesh. “The biggest stress we have seen is Sri Lanka,” said Mehta, who is also president of Unilever South Asia. He predicts that Colombo “will be very difficult for them until they can get loans from the IMF.”
Mehta added that Indian consumers are increasingly avoiding international brands in favor of domestic brands. “As a nation and in this generation, we are leaving behind our colonial past. India has pride and it is very clear,” he said, adding, “Now Indian brands are imported brands. I have the same or even more respect.”
India’s fast-changing consumer goods race has intensified with the entry of billionaire Mukesh Ambani’s Reliance Industries into the sector this year. Adani Wilmer, a distributor of fellow tycoon Gautam Adani’s edible oils and staple food, is also making inroads.
India is “not a zero-sum game,” and Mehta said competition was “good for the market.”