Breakingviews - Unilever almost looks fair and lovely in India

A pedestrian walks past the Hindustan Unilever Limited (HUL) headquarters in Mumbai January 19, 2015. REUTERS/Danish Siddiqui

MUMBAI (Reuters Breakingviews) - Unilever is rebranding its controversial and lucrative “Fair & Lovely” skin-whitening products to “Glow & Lovely”. Both names are better apt to describe how its $73 billion Indian unit, Hindustan Unilever, is weathering a strict lockdown in the giant emerging market.

A slowing economy and credit crunch were taking its toll on the industry well before the pandemic. Sales growth in fast-moving consumer goods across India shrunk from 10% in 2018 to barely 2% in late March, when the government first moved to shutter businesses. And resulting price reductions were one reason Hindustan Unilever’s $143 billion Anglo-Dutch parent slightly undershot a target to improve its group underlying operating margin last year.

Nonetheless, the Indian company looks in good shape. Organic revenue in the three months through June fell a less-than-feared 7% year-on-year, thanks to a focus on health, nutrition and hygiene products like Lifebuoy sanitiser and Surf Excel detergent. Newly acquired brand Horlicks, advertised as an “immunity-supporting” hot drink, helped prop up EBITDA margins too. That lifted net profit up 7% from a year earlier, to $252 million. Overall, the company reckons as much as 80% of its business is gaining market share over rivals which include Colgate-Palmolive and Nestle.

Some of the gains will be fleeting. Boss Sanjiv Mehta warned that the obsessive demand for sanitiser is unlikely to outlive the virus, for example. Fresh potential disruptions to the company’s operations are a significant concern too, as major cities move to reimpose stricter lockdowns. Worryingly, dozens of Unilever employees have tested positive for Covid-19 at a Haridwar unit in recent days. Meanwhile, the spread of the virus to non-urban areas, home to two-thirds of the population, may also dash India Inc’s hopes of a rural-led economic recovery.

Even so, investors are seeking safety in the largest and best capitalised names in the market to ride out the pandemic-related commotion. That may explain why Hindustan Unilever’s shares have risen one-fifth this year, driving its valuation to a five-year high. The Indian company is now valued at 61 times its forward earnings, more than three times its parent, Refinitiv shows. Given the company’s glowing performance, that is somewhat fair.


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