Best defensive stock to buy in India?

Hindustan Unilever: The FMCG industry is one of the largest and fastest-growing sectors in India. It is known to be a defensive sector as it is generally considered to be a safe haven for the investors. This means that when the markets crash due to negative sentiments, investors rush to pick these stocks.

For instance, On 4th June 2024, The NIFTY50 and BANKNIFTY have fallen up to 8% as the election results did not align with the exit poll numbers. All the sector stocks were bleeding red except for Pharma and FMCG.

The shining star of the FMCG sector was Hindustan Unilever Limited (HUL). The stock jumped as much as 7% on the day and continued the rally to reach a new 52 week high of Rs 2,769 during the week. So why is it that investors like HUL? Keep reading to find out.

Industry Overview Of Hindustan Unilever

Before to dive deeper into the company, let us take a look at the industry. India’s FMCG sector is the 4th largest sector in our economy and It is the most important in the country’s GDP.

Note: If you want to learn Candlesticks and Chart Trading from Scratch, here’s the best book available on Amazon! Get the book now!

telegram channeltelegram channel

In India, fast-moving consumer goods demand will continue to improve gradually. In FY20, FMCG in India has a market share of US $110 billion and It is estimated to grow at a CAGR of 14.9% to US $ 220 billion in upcoming years. Further, the packaged food market in India is projected to grow to US $70 billion in the next couple of years.

FMCG company in India is a dynamic sector that includes products with an extensive turnover and low cost. This industry provides food and beverages, personal care, household care, and over-the-counter pharmaceuticals.

In India, FMCG is the fastest-growing driven by reasons such as rising disposable incomes, urbanization, and shifting consumer tastes. The sector benefits from widespread distribution networks and increased rural consumption. E-commerce has also considerably increased FMCG sales by 11%, providing a broad market reach and convenience.

Company Overview Of Hindustan Unilever

Hindustan Unilever Limited (HUL) is one of the largest fast-moving consumer goods companies in India. The company first started in India in 1931 as Hindustan Vanasapathi Manufacturing Ltd. It is a parent company of the British Company Unilever. Later It was renamed as Hindustan Unilever Limited in 2007. 

HUL’s product portfolio includes over 50+ brands across 16 FMCG categories including home care, personal care and foods. In India, 9 out of 10 households use one or more HUL brands’ products.  The company has more than 9 million retail outlets across India to sell our products and more than 3500 distributors in India. HUL  has reported more than 19000 employees. It is the number 1 employer of choice among all industries. HUL has support for more than 2 lakh rural women to be empowered through the Shakti project.

Segment and Product Categories Of Hindustan Unilever

HUL has the production of various products such as cleaning and home care,  Beauty and personal care products, food and refreshments. HUL is the market leader in creating beauty products such as skin care, hair care and color cosmetics with a turnover of more than 2000Cr.  In FY24, The company has improved coverage by 1.2x and Assortment by 1.25X compared to FY20. HUL has the 1.3 million stores onboard with a 200bps+ on-shelf availability and 500bps+ on-line availability.

Home Care

HUL Home Care has 38% of all company segments. It had sales growth of 1% YOY, volume growth will be mid-single digit growth and segmental revenue of  Rs.5,715 Cr. and a segmental margin of 19% in Q4 FY24.  Home care has some segments like fabric care, household care,  and water purifiers.

Beauty and Personal Care

HUL Beauty and Personal Care has 35% of all company segments. It had sales growth of -2%, volume growth of flat quantity and segmental revenue of  Rs. 5,050 crore, and a segmental margin of 26% in Q4 FY24. Beauty and personal care have some segments like skin cleaning, hair care, skin care and oral care.

Foods and Refreshments

HUL Foods and Refreshments has 25% of all company segments. It had sales growth of 4%, volume growth of flat quantity and segmental revenue of  Rs. 3,911 crore, and a segmental margin of 19% in Q4 FY24. Foods and refreshments have some segments like nutrition drinks, foods& beverages and ice cream.

Financial Analysis Of Hindustan Unilever

HUL has revenue increased by 2.17% from Rs. 60,580 crore in FY23 to Rs. 61,896 crore in FY24. HUL revenue growth of CAGR will be 11.68% over the past four years. The net profit of HUL increased from Rs.10,144 crore in FY23 to Rs.10,282 crore in FY24 growing by 1.36%. HUL’s Net Profit growth in CAGR will be 11.04% over the past four years.

HUL had a Return on Equity from 20.42% in FY23 to 20.26% in FY24. and ROCE will be 25% in FY24. The company is almost debt-free. In FY24 debt-to-equity ratio is to be 0.03x. HUL Operating Margins have increased slightly from 22.32% in FY23 to 23.03% in FY24. Net Profit Margin of the company during the year will be  16.61% in FY24.

HUL has an EBITDA of 23.8% of turnover with more than 40bps compared to FY23. In FY24, The Gross Margin will be more than 430bps, EPS growth will be 2%, volume growth also increase by 2% and Profit after Tax Growth will be 4% compared to FY23.

Stock Movement History

At the time of the COVID 1st wave, the market fell by around 40% from 12,400 to 7,500, but the HUL has fallen only by 20%, which means it is half of the market fall. After some days, HUL had reached an all-time high of 2614.30 and surged by almost 50%.

During the 2nd wave of COVID, while the markets crashed by almost 9%, HUL stock surged by 26% and made a new all-time high of 2,859.30. Following that, the Russia and Ukraine war broke out during which the market fell by 15%. On the contrary, HUL’s price increased by almost 40%.

Continuing the streak, On 4th June, the market fell down by 8% but HUL stock increased by 7%. On 5th June, it surged by 4.26%. In the two days, HUL gained around 10% in the market. So HUL has a good performance in negative markets as well.

Why Hindustan Unilever is Surging in a Highly Negative Market?

When a highly negative market FMCG and Prama stocks are the best options because these stocks are considered defensive stocks, a defensive stock is a stock whose growth has a low correlation to economic conditions. This stock will perform and give constant returns on revenue and the cash flows of the company will not depend on the market conditions. It will remain stable.  

In an investors mind, he will square off his stock other than defensive stock and he will be investing in the defensive stock in a highly negative market because the stock will not affected by the market condition. He thinks everyone will be buying food and consumer goods, medicines on a daily basis irrespective of economic conditions. This will help FMCG and pharma company revenue remain constant.

HUL is one of the FMCG companies in India although It is a defensive stock in nature. The beta of the defensive stock will always be less than 1 this indicates less volatility than the market. HUL has a beta value of 0.2 so this stock will performance in a highly negative market. 

Another important reason will be upcoming budget will concentrate on incentive measures and increase disposable income. It will support to the rural market. The upcoming government is likely to focus more on consumption and more focus on capex and infrastructure compared to the earlier government.

Future Plans/Advantages of Investing in Hindustan Unilever

  • HUL’s business strategy aims to increase volume growth, improve gross margins to fuel further investment and expand market share.
  • HUL has 19 brands that contribute to a turnover of more than 1000 crores, 3 brands are moving towards 1000 Cr. and 8 brands are the most valued in India. In that Surf Excel and Brooke Bond have contributed more than 5000 Cr. to company turnover.
  • HUL is the market maker in the beauty categories and Skincare, Haircare and Color cosmetics have a strong portfolio and market leadership.
  • HUL has focused on improving competitive volume-led growth and improving skin cleaning performance. 
  • HUL is unlocking growth potential by increasing investments in brands and long-term strategic priorities, with the EBITDA margin expected to remain steady in the upcoming year.
  • HUL has deep distribution to maintain a competitive advantage over competitors to hold the market share and make profits.
  • HUL is dedicated to redefining work structures and empowering the workforce through upskilling initiatives, which will help meet business needs and individual preferences.
  • HUL is adopting 100% recyclable or compostable plastic by 2025 and collects and processes more plastic than the company sells.
  • The  HUL is separated from the beauty and personal care in the business segments and implemented from April 1. It will help more focus on consumer goods.

Is it a good buy?

Motilal Oswal has given a buy call to HUL with a target price of Rs. 2900 and according to the brokerage, management is increasing brand investments to encourage volume growth and to counter local competition.

BOB Capital Markets Ltd is given a target price of Rs. 2895 and the brokerage says that HUL has started recovering the volume in rural areas.

Also read…

Financial Metrics Of Hindustan Unilever

The key financial metrics of HUL are given below.


Now we are in the part of the conclusion, HUL is one of the leading FMCG stocks. Pharma and FMCG stocks are also constantly performing in highly negative markets in election results. For traders, HUL is the better stock for investing in a negative market. It is a defensive stock because HUL has a beta value of 0.2 and another reason is to focus on capital expenditure and infrastructure support for the rural economy.

HUL has a very strong fundamentals analysis. The company had a revenue of Rs. 61,896 Cr. in FY24 and maintained revenue growth of CAGR will be 11.68% and net profit CAGR growth of 11.04% over the last 4 years. HUL is an almost debt-free company. It is focusing on increasing volume, separating beauty and personal care, adopting recyclable plastic and expanding market share.

Written by Nikhil Naik

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.

Start Your Stock Market Journey Today!

Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!

Source link