HUL vs ITC: the FMCG vs FMCG (ahem, Tobacco)

Would you use the Aashirwad aata or Annapurna aata? Then, there are choices between Dabur red toothpaste or Nimyle toothpaste. The same competition exists between Savlon sanitiser or handwash and Lifebuoy sanitiser or handwash. You have used products from either one of the brands or both HUL and ITC.

Yes, the two FMCG (Fast Moving Consumer Goods) conglomerates, ITC and HUL, have been going neck and neck in terms of their products and features for the last many years. The FMCG space is competitive, and a lot depends on the price-quality combo for the sales of their products.

But, for the shareholders of these companies, there is good news since the prices of both these stocks have been favourable even during recent volatile periods.

This blog discusses the two most prominent FMCG brands: HUL (Hindustan Unilever Limited) and ITC (India Tobacco Company). Let us first overview the FMCG sector as a whole:

The FMCG Sector

As per the FMCG Industry in India (industry report March 2022), this sector is the fourth largest sector in India. India’s growth is mostly (50 per cent) derived from the sales of personal care and household products.

The sector drives growth from the needs of the individuals in rural and urban areas to have a comfortable lifestyle with the pride of using popular brands. 

The FMCG sector has most of its customers in the urban areas, with around 55 per cent of the revenue share. This makes the urban customers a more significant contributor to revenues and profits for the FMCG segment in India.

In the rural and semi-rural areas, too, FMCG products comprise a significant proportion of their spending.

By the year 2025, the FMCG sector in India is expected to grow by more than 14 per cent. One of the primary reasons for this potential growth is the rising internet connectivity across the country. Another important reason is the acceptability of e-commerce platforms for buying and selling goods. As per the Advantage India study by IBEF, the e-commerce segment will be the fastest-growing contributor to FMCG sales by 2030.

Most investors choose FMCG businesses for investments because they are considered evergreen. The demand for FMCG products remains stable throughout the year, and there is a regularity of sales due to aspects like brand loyalty and the moderate shelf life of these products.

Let’s look at the two FMCG heavyweights in India and their share performance.

Company Overview of HUL

One of the leading conglomerates in the FMCG space in India, HUL hosts more than 50 FMCG sub-brands in India. The company has been in the Indian market for around 90 years and has its headquarters in Mumbai.

Its recent “bin boy” advertisements are trending for their message that a simple act of segregation of dry waste and wet waste can lead to a better environment.

Some of the famous brands by HUL have been in use for more than a century. These are Lifebuoy (since 1895), Brooke Bond (since 1900) and Dalda (since 1937).

As far as the HUL stock is concerned (NSE: HINDUNILVR BSE: 500696), here is what the company’s financials look like:

Company overview of ITC

ITC has its head office based in Kolkata and has a diversified private sector presence in the Indian FMCG space. The company has 13 businesses across five segments and exports goods to more than 90 countries worldwide.

ITC is currently venturing into profitable spaces in joint venture initiatives. Its business volume crossed Rs.24,00 crores in 2021-22.

ITC is India’s leading private sector company in gross value (sales), crossing Rs.94,104 crores and breaking the Rs.15,000 crore net profit mark (as of March 2022).

In terms of stocks (NSE: ITC BSE: 500875), investors prefer the ITC stock due to its ever-shining cigarette brand and other fast-growing businesses.

Let us learn about their company’s financials:

Here are the key ratios of comparison for the two FMCG conglomerates: 

HUL vs ITC: Stock Comparison

Below are the ratios and parameters you can consider while making investment decisions: 

ROE: Return On Equity

ROE can tell you about the value a shareholder gets from the company’s equity. The higher the ROE, the better returns the shareholders are getting. The ROE of HUL as of July 2022 is 18.33 per cent, whereas ITC’s ROE was 25.66 per cent for the same period. 

Here’s the three-year and five-year ROE data comparison of HUL and ITC:

For HUL

For ITC

ROCE: Return On Capital Employed 

This ratio indicates how efficient the company is in utilising its capital resources. Two types of resources majorly contribute to a company’s growth. These are human resources and capital resources. The ROCE is an excellent parameter that measures a capital-intensive company’s performance. As you have seen in the earlier ratio, the return on equity is crucial; here, you measure its growth in terms of equity and debt. 

Here’s a comparative picture of the ROCE data of HUL and ITC.  

For HUL 

For ITC

P/E: Price to Earnings 

Another crucial factor in gauging the performance of a stock is its P/E ratio. This ratio indicates how much a company earns regarding its share price. This is measured using earnings per share and the company’s current share price. 

If a company’s P/E ratio is high, its stocks might be overvalued, or the investors might be optimistic about its growth. Similarly, a lower P/E ratio can indicate that the share price is undervalued. 

The P/E ratio of HUL is 66.36, and that of ITC is 24.17. 

EPS: Earnings Per Share

EPS indicates how much profit a shareholder would earn from one company share. For example, if the business earns a profit of Rs.1000 and the number of shares floating in the market is 100. The profit per share or EPS would be Rs.10 (1000/100).  m

Generally, a higher EPS is preferred by equity investors since it is an indication of higher profits. The EPS of HUL is 37.53, whereas that of ITC is 12.20. 

Five-year CAGR: Compound Annual Growth Rate 

The CAGR of a stock is one of the vital indicators of its performance. This ratio shows how much a shareholder has earned by investing in a business. It also indicates how much time you need to stay invested for a certain geometric progression of a company’s stock price. 

If you are looking for a stock that can give you stable returns over a period, you should look at stocks with a CAGR between 8 per cent to 12 per cent. 

Here are the 5-year CAGR figures for HUL and TCS: 

For HUL 

For ITC 

From the above figure, you can see that the 5-years CAGR for ITC is negative. This can indicate the company’s losses are more significant than its profits over the five years. 

The Bottom Line

The two giants, HUL and ITC, are attractive stocks regarding their business diversity and volume. However, one of the biggest threats to ITC is the overpowering of its profits from cigarettes and tobacco products in terms of volume. This can be a matter of concern if you look at the company’s long-term CAGR. 

All in all, the two companies have been catching the nerve of the FMCG segment for a very long time and have been evolving. Just like ITC and HUL, learn about the top 12 listed FMCG stocks in India like Nestle, Bajaj Consumer Care Limited, Emami and Marico Limited with comprehensive but to-the-point data from Finology’s Ticker. The Ticker portal offers insights into stock research, stock peer comparison, analytics tools and more.