January 18, 2018 / 6:01 AM / a month ago

RPT - BREAKINGVIEWS-Unilever's $47 bln Indian arm is real beauty spot

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.) (Refiles with no changes to text for wider distribution.)

By Una Galani

MUMBAI, Jan 17 (Reuters Breakingviews) - Unilever’s Indian arm has attractive features. The South Asian country is on track to become the global consumer giant’s largest market by sales, overtaking the United States. Its listed local unit, which makes everything from Dove deodorant to Knorr soup, dominates fast-moving consumer goods in the emerging market and has an equity value of $47 billion. A multiple of more than 50 times forward earnings – more than twice its parent’s valuation – reflects that promise.

Unilever does not break down the revenue contribution from individual countries but brokerage firm Ambit Capital reckons India brings in around 9 percent of the Anglo-Dutch group’s global sales. The brokerage reckons this will rise to as much as 38 percent by 2025. Unilever itself thinks India will generate almost one quarter of all of the growth in its homecare business – one of its four major categories – over the next five years.

Hindustan Unilever’s (HUL) net profit rose 28 percent to 13.3 billion rupees ($208 million) in the three months to December, comfortably beating analysts’ estimates, the company reported on Wednesday. Impressively it managed to increase advertising spending – which is crucial to retaining market share – while continuing to cut overall costs.

That success is partly because the company enjoys an unusual position of dominance in India. It leads the market in more categories from skincare to dishwashing than any other company in a major economy – including China – according to Euromonitor data cited by Ambit. The competition is fragmented: even major rivals like Colgate-Palmolive India and Dabur are a fraction of its size.

The threat from local upstarts is also exaggerated. Patanjali Ayurved, a privately owned company co-founded by saffron-clad yogi Baba Ramdev, doubled its sales in the financial year to March 2017 as consumers snapped up products, including some made with cow urine. However, Ramdev’s latest prediction that Patanjali will overtake HUL seems a stretch now that the latter has launched its own “naturals” range.

A substantial improvement in profit margins is one reason that HUL’s stock is up 64 percent in the past year. India’s upcoming pre-election budget should line the pockets of the rural population, a big driver of consumption growth. That will confirm its position as Unilever’s most enticing beauty spot.

On Twitter twitter.com/ugalani

CONTEXT NEWS

- Hindustan Unilever reported a 28 percent rise in quarterly profit on Jan. 17, beating consensus estimates.

- Net profit at the Indian diversified consumer goods maker rose to 13.3 billion rupees ($208 million) in the quarter ended Dec. 31, compared with 10.4 billion rupees a year earlier. Analysts polled by Thomson Reuters had estimated a net profit of 11.6 billion rupees on average.

- On Jan. 17, rival Patanjali Ayurved announced partnerships to sell its products online through eight e-commerce companies including Amazon and Flipkart. The company, co-founded by Baba Ramdev, also said it is not planning an initial public offering.

- HUL shares have risen 64 percent in the past year, twice as fast as rivals Colgate Palmolive-India, Dabur India, and Marico. They closed at 1,371 rupees, down 0.8 percent, on Jan. 17.

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Editing by Peter Thal Larsen and Bob Cervi

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