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HUL vs ITC: Stock and Business comparison

Hindustan Unilever Limited (HUL) and ITC are two of the biggest FMCG companies in India. The stock performance of the two companies, though, have been in different directions.

While HUL has created immense wealth for its investors, ITC has given negative returns to those who have stayed invested in the last 5-6 years.

Let’s dig deeper and learn more about the two companies.

HUL Company Info:

  • The company was founded in 1933.
  • It’s a subsidiary of the British-Dutch company Unilever.
  • In 1956, Hindustan Vanaspathi, Lever Brothers and United Traders merged to become Hindustan Lever Limited.
  • In 2007, the company was renamed as ‘Hindustan Unilever Limited’.
  • HUL is a well-diversified company producing foods, beverages, personal care products, cleaning agents, several other consumer goods and water purifiers.
  • In a research, it was found that 9 out of 10 households in India use HUL products.
  • HUL generates revenues in excess of ₹ 40,000 crore, making it one of the largest FMCG companies in India.
  • In May 2020, HUL is the 4th most valuable listed company after Reliance, TCS and HDFC Bank.
HUL Brands
HUL Brands: Some of the most popular ones.

ITC Company Info:

  • The company was established in 1910 as ‘Imperial Tobacco Company of India Limited’.
  • It was renamed to ‘India Tobacco Company Limited’ in 1970.
  • It was renamed again in 1974 to its current name ‘ITC Limited’.
  • ITC completed 100 years of business in 2010, making it one of the oldest companies in India.
  • The company is mainly into Tobacco, other FMCG, Hotels, Paper, Packaging and Agri Commodities business.
  • The main brands of ITC include Gold Flake, Aashirvaad, Bingo and Sunfeast.
  • ITC is the market leader in cigarette business with more than 85% market share.
  • ITC generates revenues in excess of ₹ 52,000 crore, making it one of the largest FMCG companies in India.
  • In May 2020, ITC is the 10th most valuation listed company in India.
ITC Brands: Some of the most popular brands of ITC. Disclaimer: Does not include tobacco brands.

HUL vs ITC: Key Financial Figures

 HULITC
Market Cap4,89,312 crore2,13,946 crore
Price to Earning (PE)7114
Net Profit (Last 12 months)6,748 crore14,985 crore
Sales Growth (5 years)6.1%6.49%
Profit Growth (5 years)11.54%7.88%
DebtNilNil
Cash Reserves8,000 crore57,200 crore

HUL vs ITC: The Differences

  • As of May 2020, HUL is 5 times more expensive than ITC.
  • However, the Net Profit over the last 12 months of ITC is 2.2 times more than HUL. Yet, the market has valued HUL 2.3 times more than ITC.
  • While sales growth of the two companies is similar over a period of 5 years, the Net Profit of HUL has compounded at the rate of 11.5% – significantly higher than the 7.88% of ITC.
  • HUL and ITC are the top FMCG companies in India. However, the tobacco business of ITC is its cash-cow, contributing more than 80% to its earnings before taxes.
  • ITC doesn’t get the valuation it deserves because of poor capital allocation. It’s FMCG business has shown excellent growth over the last few years, but the ROCE (return on capital employed) is poor.
  • ITC’s Hotel business too is capital-intensive – requiring more capital than its Tobacco and FMCG business, but generating significantly lesser earnings before tax.
  • The issue for ITC lies in two areas mainly – its Hotel business and the unallocated capital, which it plans to distribute as dividend.

ITC vs HUL Stock Price Performance:

ITC vs HUL Stock Price Performance in the last 5 years.
  • As you can clearly see from the graph above, HUL has clearly outperformed ITC in the last 5 years.
  • If you invested ₹ 1 lakh in HUL in May 2015, it would be around ₹ 2.41 lakhs today. A gain of 141% in 5 years.
  • Whereas, if you invested ₹ 1 lakh in ITC in May 2015, it would be around ₹ 80,000 today. A loss of 20% in 5 years. Fixed deposit would give siginificantly better returns.

However, the past performance does not guarantee future returns. Far from it. HUL today is over-valued, quoting a price-to-earning ratio of 71 times. In other words, you are currently paying 71 times for each rupee earned by the company.

The current stock price of ITC paints a completely different picture. ITC is at historically low valuations.

Check out the historial PE graph below:

Never has the PE of ITC gone below 20, not even during the financial crisis of 2008 was the stock quoting such low valuations.

ITC has never quoted such low valuation in last 15 years. No even during the stock market crash of 2008 did the stock quote less than 20 PE.

Currently, in the corona-virus led market crash, ITC has fallen to historically low valuations. The stock is currently trading at a PE of just 14.

Has the market mis-priced ITC or does the market know something that we don’t? That’s the big question.

HUL is quoting insanely high valuations. The recently announced results were disappointing and the stock price has fallen by nearly 20%. Yet, as mentioned in the beginning of the article, almost every household in India uses HUL products.

It’s a market-leader in essential items that most of us use on a daily basis. Hence, inspite of the Corona scare, the earnings of the company are little to remain solid – as people won’t stop spending on consumer goods that are required for survival.

ITC’s hotels business has come to a halt. Will people reduce or quit smoking and become more health conscious after the Corona episode? Also, the government can always increase taxes on tobacco products, which are passed on to the customer.

Clearly, there is more uncertainty around ITC – which is why the stock is cheap.

Which company will you invest in? ITC or HUL? Tell us in the comments section below.

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