A study & comparative analysis of hul & itc performance

1. 1. 1 | P a g e FMCG Industry Introduction India is a consumer driven market, with

consumer spending in the country projected to more than double by 2025. These days,
the Indian consumer segment, broadly categorized into urban and rural markets, is
attracting marketers from across the globe. Global corporations see India as a key
market for the future. The growth in the country's consumer market is largely driven by a
young demographic and rising disposable income. If India sustains its current pace of
growth for the foreseeable future, average household incomes will likely triple over the
next twenty years and the country will become the world's fifth largest consumer
economy by 2025, as per a study by the McKinsey Global Institute (MGI). The
Government of India has also played a significant role in the growth of the Indian
consumer segment. It has brought about policies which have attracted foreign direct
investment (FDI) and consequently boosted economic growth. Marketsize India has the
potential to become the world's largest middle class consumer market with an
aggregated consumer spend of nearly US$ 13 trillion by 2030, as per a report by Deloitte
titled 'India matters: Winning in growth markets'. Driven by growing incomes and
increasing affordability, the consumer durables market is projected to expand at a
compound annual growth rate (CAGR) of 14.8 per cent, from US$ 7.3 billion in FY12 to
US$ 12.5 billion in FY15. Online retailing, both direct and via marketplaces, will grow
threefold to become a Rs 50,000 crore (US$ 8.26 billion) industry by 2016, driven by a
50-55 per cent per year growth over the next three years, as per rating agency Crisil. The
growth of internet retail is also expected to boost offline retail stores.
2. 2. 2 | P a g e Investments The following are some of the major investments and
developments in the Indian consumer market sector: The high penetration of internet and
the growing use of smartphones have helped top e-commerce firms leading to a rapid
rise in their valuations, as per experts. This rapid growth of internet-based companies
comes at a time when Flipkart is valued at an around US$ 4-5 billion and Justdial has
market capitalisation of Rs 11,000 crore (US$ 1.81 billion). Finland-based smartphone
company, Jolla, has signed an agreement with Snapdeal.com to launch its handsets in
India. "India is the rising smartphone market of the world and we look forward to
welcoming many new Jolla fans across the country. Since late 2011 when we established
the company Jolla, we have received a tremendous amount of interest from India to enter
this great market," as per Mr Sami Pienimäki, Co-founder and CMO, Jolla. Ethnic apparel
brand Soch will soon launch its own online retail store via which it will offer specialised
services to bring in customers. "We want to bridge the gap between online and offline. I
believe it is only a matter of time before these channels merge," as per Mr Vinay
Chatlani, SEO, Soch. Bharti Enterprises has agreed to sell a majority stake in its group
company, Beetel Teletech to a unit of US-based Brightstar Corp. The deal could allow
Brightstar to test India's fast growing mobile phones industry. "The new mobile business
and related technologies that Brightstar is bringing to Beetel will help drive significant
growth by leveraging our deep distribution strength," as per Mr Rakesh Bharti Mittal,
Vice-Chairman, Bharti Enterprises. Finnish packaging major Huhtamaki has entered into
an agreement to buy Positive Packaging which is known for producing packaging
materials, for a transaction worth US$ 336 million. "The transaction enhances our
position in India and provides us with much improved access to the fast growing markets
of Africa and Middle East," as per Mr Jukka Moisio, CEO, Huhtamaki Oyj. Google has
tied up with Indian handset-makers Karbonn, Micromax, and Spice to develop sub- US$
100 smartphones, some of which be in the market as early as September 2014. The
initiative could help propel the Indian brands' image globally and as well as bring in
greater competition in India's entry-level smartphone market, as per experts.
3. 3. 3 | P a g e Government Initiatives The Government of India has allowed 100 per cent
FDI in the electronics hardware- manufacturing sector via the automatic route. The
government has also allowed 51 per cent FDI in multi-brand retail trading and 100 per
cent in single-brand retail trading in an effort to bring more foreign investment into India.
Hyderabad will soon have a Rs 100 crore (US$ 16.52 million) National Institute for
Footwear Design and Development. The Government of Andhra Pradesh has allocated
 the required land at Gachibowli in Cyberabad. Funds for the centre have already been
sanctioned by the Ministry of Commerce. With the growing demand for skilled labour
among Indian industries, the Indian government aims to train 500 million people by 2022,
and is seeking participation of private players and entrepreneurs for the purpose. Several
corporate, government, and educational organizations are putting in the effort to train,
educate and generate skilled workers. RoadAhead India is set to become a key market
for wearable technology such as smart watches and fitness monitors, on the back of
consumer interests in these latest gadgets and growing spending on consumer durables.
Respondents from India were most interested in purchasing fitness monitors (80%),
smart watches (76%) and internet-enabled eyeglasses (74%), as per Accenture's Digital
Consumer Tech Survey 2014. American measurement company Nielsen projects that
rural India's FMCG market will top the US$ 100 billion mark by 2025. Online portals are
anticipated to play a significant role for companies trying to break into these markets. The
Internet is also allowing for a cheaper and more convenient means to increase a
company's reach by overcoming geographical barriers. Urban trends With rise in
disposable incomes, mid- and high-income consumers in urban areas have shifted their
purchasing trend from essential to premium products. In response, firms have started
enhancing their premium products portfolio. Indian and multinational FMCG players are
leveraging India as a strategic sourcing hub for cost-competitive product development
and manufacturing to cater to international markets.
4. 4. 4 | P a g e Top Companies According to the study conducted by AC Nielsen, 62 of the
top 100 brands are owned by MNCs, and the balance by Indian companies. Fifteen
companies own these 62 brands, and 27 of these are owned by Hindustan Unilever. The
Top Ten India FMCG brands are: 1. Hindustan Unilever Ltd. 2. ITC (Indian Tobacco
Company) 3. Nestle India 4. GCMMF (AMUL) 5. Dabur India 6. Asian Paints (India) 7.
Cadbury India 8. Britannia Industries 9. Procter & Gamble Hygiene and Health Care 10.
Marico Industries
5. 5. 5 | P a g e Five Forces forFMCG Industry analysis: Rivalry among Competing Firms: In
the FMCG Industry, rivalry among competitors is very fierce. There are scarce customers
because the industry is highly saturated and the competitors try to snatch their share of
market. Market Players use all sorts of tactics and activities from intensive advertisement
campaigns to promotional stuff and price wars etc. Hence the intensity of rivalry is very
high. Potential Entry of New Competitors: FMCG Industry does not have any measures
which can control the entry of new firms. The resistance is very low and the structure of
the industry is so complex that new firms can easily enter and also offer tough
competition due to cost effectiveness. Hence potential entry of new firms is highly viable.
Potential Development of Substitute Products: There are complex and never ending
consumer needs and no firm can satisfy all sorts of needs alone. There are plenty of
substitute goods available in the market that can be re-placed if consumers are not
satisfied with one. The wide range of choices and needs give a sufficient room for new
product development that can replace existing goods. This leads to higher consumer’s
expectation. Bargaining Power of Suppliers: The bargaining power of suppliers of raw
materials and intermediate goods is not very high. There is ample number of substitute
suppliers available and the raw materials are also readily available and most of the raw
materials are homogeneous. There is no monopoly situation in the supplier side because
the suppliers are also competing among themselves.Bargaining Power of Consumers:
Bargaining power of consumers is also very high. This is because in FMCG industry the
switching costs of most of the goods is very low and there is no threat of buying one
product over other. Customers are never reluctant to buy or try new things off the shelf.
6. 6. 6 | P a g e
7. 7. 7 | P a g e Hindustan Unilever Limited Making Sustainable leaving commonplace
Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods
Company with a heritage of over 80 years in India and touches the lives of two out of
three Indians. HUL works to create a better future every day and helps people feel good,
look good and get more out of life with brands and services that are good for them and
good for others. With over 35 brands spanning 20 distinct categories such as soaps,
detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee,
 packaged foods, ice cream, and water purifiers, the Company is a part of the everyday
life of millions of consumers across India. Its portfolio includes leading household brands
such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé,
Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan,
Kwality Wall’s and Pureit. The Company has over 16,000 employees and has an annual
turnover of INR 27408 crores (financial year 2013-2014). HUL is a subsidiary of Unilever,
one of the world’s leading suppliers of fast moving consumer goods with strong local
roots in more than 100 countries across the globe with annual sales of €49.8 billion in
2013. Unilever has 67.25% shareholding in HUL. Company vision We meet every day
needs for nutrition, hygiene and personal care with brands that help people feel good,
look good and get more out of life.Sustainability is at the heart of our business, and
through our brands, we seek to inspire people to take small everyday actions that can
add up to a big difference for the world. Our deep roots in local cultures and markets
around the world give us our strong relationship with consumers and are the foundation
for our future growth. We will bring our wealth of knowledge and international expertise to
the service of local consumers a truly multi-local multinational. Our long-term success
requires a total commitment to exceptional standards of performance and productivity, to
working together effectively, and to a willingness to embrace new ideas and learn
continuously. To succeed also requires, we believe, the highest standards of corporate
behaviour towards everyone we work with, the communities we touch, and the
environment on which we have an impact. This is our road to sustainable, profitable
growth, creating long-term value for our shareholders, our people, and our business
partners.
8. 8. 8 | P a g e Purpose & principles Our corporate purpose states that to succeed requires
"the highest standards of corporate behavior towards everyone we work with, the
communities we touch, and the environment on which we have an impact."  Always
working with integrity Conducting our operations with integrity and with respect for the
many people, organizations and environments our business touches has always been at
the heart of our corporate responsibility.  Positive impact We aim to make a positive
impact in many ways: through our brands, our commercial operations and relationships,
through voluntary contributions, and through the various other ways in which we engage
with society.  Continuous commitment We're also committed to continuously improving
the way we manage our environmental impacts and are working towards our longer-term
goal of developing a sustainable business.  Setting out our aspirations Our corporate
purpose sets out our aspirations in running our business. It's underpinned by our code of
business Principles which describes the operational standards that everyone at Unilever
follows, wherever they are in the world. The code also supports our approach to
governance and corporate responsibility.  Working with others We want to work with
suppliers who have values similar to our own and work to the same standards we do. Our
Business partner code, aligned to our own Code of business principles, comprises ten
principles covering business integrity and responsibilities relating to employees,
consumers and the environment. Unilever Sustainable Living Plan In an uncertain and
volatile world, we cannot achieve our vision to double our size without also reducing our
environmental footprint and increasing our positive social impact. Launched in 2010, the
Unilever Sustainable Living Plan is our blueprint for sustainable growth. The Plan is
helping to drive profitable growth for our brands, save costs and fuel innovation. Our Plan
sets out three big goals
9. 9. 9 | P a g e Underpinning these goals are nine commitments supported by targets
spanning our social, environmental and economic performance. HUL Businesses Home
Care
10. 10. 10 | P a g e PersonalCare Foods & Beverages
11. 11. 11 | P a g e WaterPurifier HUL Group of Companies HUL Group Companies
Subsidiaries Unilever India Exports Limited India Unilever Nepal Limited Nepal
Daverashola Estates Private Limited India Pond’s Exports Limited India Levers
Associated Trust Limited India Levindra Trust Limited India Hindlever Trust Limited India
Jamnagar Properties Private Limited India Brooke Bond Real Estates Private Limited
India Lakme Lever Private Limited India Aquagel Chemicals Private Limited Trust HUL
 Securitization of Retirement Benefit Trust Joint Venture Kimberly Clark Lever Private
Limited
12. 12. 12 | P a g e Indian Tobacco Company Limited Creating enduring Value for India
Indian Tobacco Company (ITC) is one of India's foremost private sector companies with
a market capitalisation of US $ 45 billion and a turnover of US $ 7 billion. ITC is rated
among the World's Best Big Companies, Asia's 'Fab 50' and the World's Most Reputable
Companies by Forbes magazine and among India's Most Valuable Companies by
Business Today. ITC ranks among India's '10 Most Valuable (Company) Brands', in a
study conducted by Brand Finance and published by the Economic Times. ITC also
ranks among Asia's 50 best performing companies compiled by Business Week.
Company Vision Sustain ITC's position as one of India's most valuable corporations
through world class performance, creating growing value for the Indian economy and the
Company's stakeholders Core Principles. Purpose & Principles ITC's Corporate
Governance initiative is based on two core principles. These are:  Management must
have the executive freedom to drive the enterprise forward without undue restraints; and
this freedom of management should be exercised within a framework of effective
accountability.  ITC believes that any meaningful policy on Corporate Governance must
provide empowerment to the executive management of the Company, and
simultaneously create a mechanism of checks and balances which ensures that the
decision making powers vested in the executive management is not only not misused,
but is used with care and responsibility to meet stakeholder aspirations and societal
expectations.
13. 13. 13 | P a g e Multiple Drivers of Growth ITC’s aspiration to create enduring value for
the nation and its stakeholders is manifest in its robust portfolio of traditional and
greenfield businesses encompassing Fast Moving Consumer Goods (FMCG), Hotels,
Paperboards & Specialty Papers, Packaging, Agri-Business, and Information
Technology. This diversified presence in the businesses of tomorrow is powered by a
strategy to pursue multiple drivers of growth based on its proven competencies,
enterprise strengths and strong synergies between its businesses. The competitiveness
of ITC’s diverse businesses rest on the strong foundations of institutional strengths
derived from its deep consumer insights, cutting-edge Research & Development,
differentiated product development capacity, brand-building capability, world-class
manufacturing infrastructure, extensive rural linkages, efficient trade marketing and
distribution network and dedicated human resources. ITC’s ability to leverage internal
synergies residing across its diverse businesses lends a unique source of competitive
advantage to its products and services. Within a relatively short span of time, ITC has
established vital brands like Aashirvaad, Sunfeast, Dark Fantasy, Delishus, Bingo!,
Yippee!, Candyman, mint-o, Kitchens of India in the Branded Foods space; Essenza Di
Wills, Fiama Di Wills, Vivel, Vivel Cell Renew, Engage and Superia in the Personal Care
products segment; Classmate and Paperkraft in Education & Stationery products; Wills
Lifestyle and John Players in the Lifestyle Apparel business; Mangaldeep in Agarbattis
and Aim in the Safety Matches segment. This growth has been rated by a Nielsen Report
to be the fastest among the consumer goods companies operating in India. Today ITC is
the country's leading FMCG marketer, the clear market leader in the Indian Paperboard
and Packaging industry, a globally acknowledged pioneer in farmer empowerment
through its wide-reaching Agri Business, the second largest Hotel Chain in India and a
trailblazer in 'green hoteliering'. This portfolio of rapidly growing businesses considerably
enhances ITC's capacity to generate growing value for the Indian economy. ITC's Agri-
Business is one of India's largest exporters of agricultural products. The ITC Group’s
contribution to foreign exchange earnings over the last ten years amounted to nearly US$
6.0 billion, of which agri exports constituted 57%. The Company's 'e-Choupal' initiative
has enabled Indian agriculture significantly enhance its competitiveness by empowering
Indian farmers through the power of the Internet. This transformational strategy has
already become the subject matter of a case study at Harvard Business School apart
from receiving widespread global acclaim. As one of India's most valuable and respected
corporations, ITC is widely perceived to be dedicatedly nation-oriented. Chairman Y C
Deveshwar calls this source of inspiration "a commitment beyond the market". In his own
 words: "ITC believes that its aspiration to create enduring value for the nation provides
the motive force to sustain growing shareholder value. ITC practices this philosophy by
not only driving each of its businesses towards international competitiveness but by also
consciously contributing to enhancing the competitiveness of the larger value chain of
which it is a part."
14. 14. 14 | P a g e Global Exemplar in Sustainability Acknowledged as a global exemplar in
sustainability, ITC is the only enterprise in the world, of comparable dimensions to be
carbon-positive, water-positive, and solid waste recycling positive. A testimony to its
commitment to a low carbon growth path - over 41 % of the total energy requirements of
ITC is met from renewable sources. All ITC's premium luxury hotels are LEED
(Leadership in Energy and Environmental Design) Platinum certified making it the
"greenest luxury hotel chain" in the world. ITC's Paperboards and Paper business is an
icon of environmental stewardship. ITC's production facilities and hotels have won
numerous national and international awards for quality, productivity, safety and
environment management systems. ITC was the first company in India to voluntarily seek
a corporate governance rating. The Company continuously endeavours to enhance its
wealth generating capabilities in a globalising environment to consistently reward more
than 4,71,000 shareholders, fulfill the aspirations of its stakeholders and meet societal
expectations. ITC Businesses It is ITC's strategic intent to secure long-term growth by
synergising and blending the diverse pool of competencies residing in its various
businesses to exploit emerging opportunities in the FMCG sector. The Company's
institutional strength deep understanding of Indian consumer, strong trademarks, deep
and wide distribution network, agri-sourcing skills, packaging know-how and cuisine
expertise continue to be effectively leveraged to rapidly grow the new FMCG businesses.
15. 15. 15 | P a g e ITC has rapidly scaled up presence in its newer FMCG businesses
comprising Branded Packaged Foods, Lifestyle Retailing, Education and Stationery
products, Personal Care products, Safety Matches and Incense Sticks (Agarbatti), at an
impressive pace over the last several years, crossing Rs. 7000 crore mark in 2013. Its
FMCG portfolio consists of 7 portfolios: ITC Group of Companies ITC Group Companies
Subsidiaries ITC Infotech Surya Nepal Private Limited Landbase India Limited King
Maker Marketing Inc. USA Technico Pty Limited. Australia Russell Credit Limited Wimco
Limited Srinivasa Resort Limited Fortune Park Hotels Limited Bay Islands Hotels Limited
Gold Flake Corporation Limited Joint Venture Maharaja Heritage Resorts Ltd ITC
Essentra Limited Associate Companies Gujarat Hotels Limited International Travel
House
16. 16. 16 | P a g e Research Methodology The objective of the project is to investigate the
current strategy employed by HUL and ITC and why it works for them. Fundamentally
HUL and ITC are different business models as HUL is a pure play FMCG Company
whereas ITC is a conglomerate where FMCG happens to be one small portion of the
entire business. Research comprises defining the problem statement, formulating
hypothesis, probable solutions, collecting, organizing and evaluating solutions and
assessing the impact of the solutions proposed. ResearchProblem HUL and ITC are two
major players in FMCG industry. HUL happens to be a pure play FMCG whereas ITC is a
conglomerate. The objective of this report is to analyze and compare the overall
performance of these two companies. This performance comparison further boils down to
analyze their financial performance, market performance and supply chain performance.
These three sub angles together will fulfill and make the research comprehensive
enough. Sources ofData As highlighted above most of the analysis would primarily be
based on data points or facts gathered through secondary research. The approach for
each of the sub analysis is as follows: 1. Financial performance – Since both the
company happens to be a public listed company, we have good set of information
available through some of the major financial websites. The challenge is more in terms of
refining the data and brining them on the same ground for comparison. Also since they
are public listed company there websites have their past annual reports which can be
mined to get first hand information about the company financials. 2. Strategy
performance – This analysis is more has to do with overall strategy analysis which calls
for a analyzing the company vision analysis, growth mindset, and overall Risk which
 these companies have complied with to support their respective business models. Again
this analysis is primarily on secondary research which involves their official websites,
news websites, financial databases and discussion forums. I have also gone ahead and
contacted few officials from these two companies to get first hand perception about the
company as such. 3. Market performance – The set of analysis was more to understand
the positioning of these two players in the market. Also how does consumer related to
HUL and ITC Company as a whole. This indirectly determines the lingering psyche of
consumers about each of the products of these companies. The main source of
information for this taken through secondary research which was done across set of 35
consumers picked up in general.
17. 17. 17 | P a g e 4. Supply chain performance – This was again primarily on the basis of
secondary research performed to understand the supply chain configuration of each of
these companies and how do they differ from each other.
18. 18. 18 | P a g e Financial Performance Analysis Latest Shareholding Pattern Stock
Comparison Ratio Analysis Company (in Rs Cr) ITC Limited Hindustan Unilever Limited
Particulars FY 2014 FY 2014 Operating Profit Margin Ratio 36.96 16.22 Net Profit Margin
Ratio 25.46 13.53 ROCE 47.43 132.89 ROE / RONW 32.64 111.54 Price to Earnings
31.06 31.85 Hindustan Unilever Limited Others (14.5) Promoter (42.25) Flls (14.10) Dlls
(4.12) ITC Limited Others (45.8) Promoter (0) Flls (19.26) Dlls (34..67) Company Current
Price BSE Market Capilization FaceValue EPS (TTM) P/E No of shares ITC 355.85
283079.26 Rs. 1 Rs. 9.31 38.22 7955016340 HUL 757 163747.26 Rs. 1 Rs. 17.56 43.11
2163107800
19. 19. 19 | P a g e Key FinancialFigures Company (in Rs Cr) ITC Limited Hindustan
Unilever Ltd Particulars FY 2014 FY 2014 Total Income from Operations 35,317.08
29,233.28 Expenses 22,265.19 24,491.60 Earnings Before Other Income, Interest, Tax
and Depreciation (Operating Profit) 13,051.89 4,741.68 Depreciation 964.92 295.54
Finance Costs 6.37 40.68 Other income 970.95 570.98 PBT 13,051.55 5,215.18 Tax
4,060.93 1,259.44 PAT (before Minority Interest and share of Associates) 8,990.62
3,955.74 Profit/ (loss) attributable to Minority Interest 109.81 10.17 Share of profit / (loss)
of Associates -10.57 Consolidated Profit / (Loss) for the year 8,891.38 3,945.57 Key
Balance SheetFigures Company (in Rs Cr) ITC Limited Hindustan Unilever Limited
Particulars FY 2014 FY 2014 Share Capital 795.32 216.27 Reserves & Surplus
26,441.64 3,321.02 Net worth (shareholders funds) 27,236.96 3,537.29 Minority Interest
203.03 22.28 Long term borrowings 76.4 8.44
20. 20. 20 | P a g e Financial Ratio Comparison
21. 21. 21 | P a g e Overall Strategy Comparison Category HUL ITC Overview Hindustan
Unilever (HUL) is the largest pure-play FMCG company in the country and has one of the
widest portfolio of products sold via a strong distribution channel. It owns and markets
some of the most popular brands in the country across various categories, including
soaps, detergents, shampoos, tea and face creams. ITC is not a pure-play FMCG
company, since cigarettes is its primary business. It is diversifying into non-tobacco.
FMCG segments like foods, personal care, paper products, hotels and agri-business to
reduce its exposure to cigarettes. Performance After stagnating between 1999 and ’04,
the company is back on the growth track. In the past three years, till 2008 HUL’s net
sales have witnessed a CAGR of 11%, while net profit has posted a CAGR of 17%.
Despite diversification, ITC’s reliance on cigarettes is still huge. The tobacco business
contributes 40% to its revenues, and accounts for over 80% of its profit. This cash-
generating business has enabled it to take ambitious, but expensive bets in new
segments and deliver modest profit growth. Overall Strategy HUL always believes in
customer friendly products with major emphasis on low cost overall without
compromising on the quality of the product. They are leveraging the capabilities and
scale of the parent company and focusing on the value of execution. The entire product
product portfolio is also being tweaked to include premium offerings such as Pond’s Age
Miracle and dove shampoo in skin and hair care. ITC is focusing on delivering value at
competitive prices. Its tremendous reach through extensive distribution chain has been a
competitive advantage. Additionally, the company’s e-choupal model for direct
procurement is well known under which ITC partners with over 100,000 farmers for
 spices and wheat procurement and an even larger number for oilseeds. This kind of rural
pedigree is hard to beat. Growth Drivers The Company has been launching new products
and brand extensions, with investments being made towards brand-building and
increasing its market share. HUL is also streamlining its various business operations, in
line with the ‘One Unilever’ philosophy adopted by the Unilever group worldwide.
Introduction of premium products ITC’s backward integration to ensure that its products
pass efficiently from the farms to consumers has helped it to cut down supply and
procurement costs. ITC’s non-cigarette FMCG business leverages the large distribution
network the company has developed by selling cigarettes over the years. A rich product
mix, along with ramp-up of investments in its
22. 22. 22 | P a g e and addition of new consumers via market expansion will be HUL’s
growth drivers. new sectors, will be instrumental in charting ITC’s growth path. Risk
Being an MNC operating in India, HUL is more conservative in its strategies than its
Indian counterparts. Moreover, given increasing competition, it faces the risk of being
overtaken by domestic players in various categories. Prolonged inflation may lead to
margin contraction, in case HUL is not able to pass on this burden to consumers. The
company’s large size also poses a problem, since it does not give HUL the agility to
address the competition it faces from national and regional players. Increased regulatory
clamps on tobacco, along with rising tax burden. So, it has started an ambitious
diversification plan, which has its own set of risks. With its foray into the conventional
FMCG space, ITC has entered the high-clutter branded products market. This will burden
its resources in terms of ad spend and brand-building. Creating brand recall and building
market share in new products are ITC’s key challenges. Export ban rising crop prices
pose a threat for its agri-business, taxing its margins.
23. 23. 23 | P a g e Supply Chain performance Analysis Supply chain management plays a
crucial role in building the competitive strategy of the organization. It helps in enhancing
the productivity and profitability of the organization. For a successful supply chain
management it is necessary that every organization measures its supply chain
performance using relevant metrics. The supply chain performance of any company can
be measured by analyzing the financial reports of the company. The performance
measures used for this purpose are as follows.  Financial Ratios  Total Length of the
Chain HINDUSTAN UNILEVER LIMITED (HUL) HUL formerly known as Hindustan Lever
Limited (HLL) is India’s largest FMCG Company. HUL’s distribution network is its key
strength that has helped HUL reaches the top in the list. Their focus is on ease of product
availability, brand communication and high levels of brand experience.HUL has a
network of about 7000 redistribution stockiest covering almost one million retail outlets.
They are simultaneously creating new channels like Project Shakti:- HUL’s partnership
with self help rural women, Hindustan Unilever Network:- direct selling channel, Out of
Home:- providing vending machines for hot beverages and Health and Beauty Services:-
Lakme salons and Ayush Therapy Centers. As per the Annual report of 2008-2009 of
HUL, India the company had done fairly good in its supply chain efficacy. Excellent
customer service performance was achieved at a significantly lower cost through
operational efficiencies and cost reduction measures. Eliminating waste and hidden costs
of various operations helped business in tackling inflationary pressures. Significant
reduction in procurement costs helped in leveraging the benefits of scale in the buying
function. Appropriate capital expenditure investments created capacity for future growth
and proper management of existing assets in accordance with the principle of TPM- Total
Productive Maintenance resulted in greater asset productivity. Towards the end of 2008
the company took measures to improve its rural distribution system. Changing scenario
of rural customer demand and improved infrastructure enables the company to offer new
categories and product assortments in rural market.
24. 24. 24 | P a g e Deployment of advanced IT solutions on the back of a strong suite of
SAP application systems led to significant improvements in planning and logistics.[2] In
the changing face of modern retail trade formats, the Company has committed resources
to understand the changing shopping habits and to deliver appropriate solutions to grow
the business across categories. Many initiatives were undertaken in customer service,
category management and merchandising to win at the point-of-purchase with shoppers
 and deliver highest quality service to Modern customers. INDIAN TOBACCO
COMPANY(ITC) One of the toughest competitors for any other FMCG organization in
India is Imperial Tobacco Company (ITC). It has diverse categories of different products.
The warehousing capacity of ITC is more than 3.5 million Sqft over 55 locations. ITC
follows direct distribution from factories to distributors. The distribution Network of ITC is
given below:- According to the Annual Report of ITC, the company has made significant
investments to scale up its trade marketing and distribution. Excellence in channel
management, state-of-the-art technology solutions and considerable investments in
training and development of the sales team has enhanced its competitive abilities. The
biscuit business (Sunfeast) focused on supply chain efficiencies to increase the product
freshness and improve logistic costs. Till requisite scale is achieved, the business will
have to bear a high cost base in the interim, as the benefits of distributed manufacture to
service proximal markets are yet to be fully exploited.
25. 25. 25 | P a g e To develop quality differentiation across the value chain, they have
developed farm-to- factory spices supply chain that guarantee superior specifications and
quality attributes. Some impairment occurred in cigarette production in the Simra factory
of the Terrain region owing to frequent strikes and blockades. But it was minimized by the
company’s pro-active resource and supply chain management. In the Agro-forestry
mission of the company they have created a source of long term sustainable supply of
critical raw materials. In the paper and paperboard business, the conventional nursery
system was replaced by a novel technology that ensures significant time reduction in
raising eucalyptus saplings with improves survival rates. This has positively impacted the
fibre supply chain in the paper and paperboard business.
26. 26. 26 | P a g e Inventory turnover ratio: The inventory ratio measures how fast the
inventory is moving through the firm and generating sales. Inventory turnover ratio = Cost
of goods sold/ Average inventory Year ITC HUL 2011 3.76 8.29 2012 5.51 7.20 2013
5.26 9.26 The company having higher inventory turnover ratio indicates it has a better
inventory management system. But sometime a higher inventory ratio can be caused by
a low level of inventory which means frequent stock outs and loss of sales. HUL has
recorded an increase in sales by 15.5% and also its operating margin increased by 0.5%.
This indicates the above counter argument is not applicable for HUL . Innovative supply
chain and channel management practice by HUL has led to lower operating cost
increasing operating profit from 2964.94 crore rupees to 4076.43 crore rupees in 2009.
HUL was successful in decreasing its transportation and distribution cost and meeting the
customers demand.HUL also received the 2008-Express logistics & Supply chain Award
in the category FMCG Manufacturing Supply Chain Excellence. ITC has the lowest
average inventory turnover ratio among the three companies .But is seems that ITC has
a very well maintained distribution system. The Company size is very high with a very
long product line. The lower inventory turnover ratio can also be caused by ITD (Indian
tobacco department) strategically holding its inventory and creating artificial shortage in
the market. Its operating profit has increased from 4449.5 crore rupees to 4944.95 crore
rupees this year. Fixed asset turnover/Activity ratio: This ratio measures the sales per
rupee of investment in fixed asset
27. 27. 27 | P a g e Fixed asset turnover ratio = Net sales/Average net fixed assets Year ITC
HUL 2011 2.42 9.30 2012 1.59 9.80 2013 1.84 7.81 A companies having a high activity
ratio has a high efficiency .HUL has a high fixed asset turnover ratio because of its highly
managed raw material procurement system which implies its fixed asset utilization is
effective. The fixed asset ratio for ITC is significantly low. This can occur when there are
bottlenecks in the company’s raw material procurement chain .But there are no direct
data available to support this argument. Another reason for HUL’s high fixed asset
turnover ratio can be the companies fixed assets are old and are highly depreciated.
28. 28. 28 | P a g e Profitability ratio: The profit margin ratio helps in finding the relationship
between sales and profit. It shows the margin left over after meeting all the expenses and
manufacturing cost. Gross Profit margin (in%) = Gross profit/Net sales Year ITC HUL
2011 30.03 27.96 2012 28.44 25.86 2013 29.18 24.96 Net profit margin (in%) = Profit
after Tax/Net sales Year ITC HUL 2011 21.46 16.21 2012 21.50 19.89 2013 21.18 22.03
The one reason for lower gross profit for all the companies for last two years can be the
 Inflationary trend experienced in the market. The cost of raw material procurement was
high during the period. But HUL’s increasing net profit can cause from the cutting down of
operating cost. Return on Asset (ROA) = Profit after tax/Average total assets Year ITC
HUL 2011 0.27 0.72 2012 0.27 0.81 2013 0.25 1.24
29. 29. 29 | P a g e Total length of supply chain (in days) Inventory days of supply =
365/Inventory turnover ratio Year ITC HUL 2011 69.39 39.41 2012 66.24 50.69 2013
97.07 44.30 The total length of supply chain is arrived by calculating the days of total
inventory for supply. Here again we can see that ITC has the maximum length of supply
chain among the two companies .The one cause can be ITC artificially holding the
inventory. Lower the length of supply chain more effective is the companies supply chain
performance.
30. 30. 30 | P a g e Growth Strategy Of HUL vs ITC Five main competitive strategies are: 
Overall low cost leadership strategy  Best cost provider's strategy  Broad
differentiation strategy  Focused low cost strategy  Focused differentiation strategy
Here competitive strategy varies from sector to sector and company to company. Thus, it
is not easy to predict a single or to find a single strategy for the whole sector. When we
come on to FMCG Sector main strategies lay behind market strategies, cost, and quality
strategies. Here in this report you are going to get information about such type of
strategies of FMCG giants. Competitive strategies employedby HUL and ITC HUL & ITC
are major companies in FMCG market in India. When we compare both companies on
the basis of their strategies i.e. their competitive strategies in the present market. When
we look at the present segment breakup for both of the companies then we came to
know that their different products vary too much in the market. Now let us take a
comparative analysis of both the companies under some heads: Performance After
stagnating between 1999 and '04, the company is back on the growth track. In the past
three years, till 2008 HUL's net sales have witnessed a CAGR of 11%, while net profit
has posted a CAGR of 17%. Despite diversification, ITC's reliance on cigarettes is still
huge. The tobacco business contributes 40% to its revenues, and accounts for over 80%
of its profit. This cash-generating business has enabled it to take ambitious, but
expensive bets in new segments and deliver modest profit growth. Overall Strategy HUL
always believes in customer friendly products with major emphasis on low cost overall
without compromising on the quality of the product. They are leveraging the capabilities
and scale of the parent company and focusing on the value of execution. The entire
product portfolio is also being tweaked to include premium offerings such as Pond's Age
Miracle and dove shampoo in skin and hair care. HUL introduced Project Shakti to
penetrate the rural market. ITC is focusing on delivering value at competitive prices. Its
tremendous reach through extensive distribution chain has been a competitive
advantage. Additionally, the company's e-choupal model for direct. Procurement is well
known under which ITC partners with over 100,000
31. 31. 31 | P a g e farmers for spices and wheat procurement and an even larger number for
oilseeds. This kind of rural pedigree is hard to beat. Growth Drivers HUL has been
launching new products and brand extensions, with investments being made towards
brand-building and increasing its market share. HUL is also streamlining its various
business operations, in line with the ‘One Unilever' philosophy adopted by the Unilever
group worldwide. Introduction of premium products and addition of new consumers via
market expansion will be HUL's growth drivers. ITC's backward integration to ensure that
its products pass efficiently from the farms to consumers has helped it to cut down supply
and procurement costs. ITC's non-cigarette FMCG business leverages the large
distribution network the company has developed by selling cigarettes over the years. A
rich product mix, along with ramp-up of investments in its new sectors, will be
instrumental in charting ITC's growth path. Strategic Growthsummary of HUL  HUL
prioritized opportunities which build upon the existing assets and capabilities. It avoided
spreading their management thinly. For example: HUL first made its sales and
distribution channel & supply chain management in manufacturing and selling wheat flour
and utilized it into the selling breads produced by wheat flour.  HUL is more focused on
the innovations Example: In 1995 launched KISSAN ANNAPURNA staple foods with the
message “staple food including iodized salt”  Serving Rural population: In 2000 the 32%
 of the sales were from rural sector but in 2010 it is more than 50%.  It follows direct
communication from the customers.  It believes in expanding the portfolio.  Each
category has a different set of supply chain, production and consumer decision making
process issuing associated with it.
32. 32. 32 | P a g e Primary research – Sample Input format The questionnaire used for
collecting information is as follows:
33. 33. 33 | P a g e Data Analysis & Findings 1) According to our survey of 20 customers we
found out that HUL is the most company heard of among all others (i.e. 26%) 2)
According to our survey of 20 customers these are the 3 following products:- Three
Popular products of HUL 1) Fair and Lovely 2) Pepsodent 3) Surf Excel Three Popular
products of ITC 1) Bingo 2) Vivel 3) Dark Fantasy Choco Biscuits Three Popular products
of P&G 1) Olay 2) Tide 3) Head & Shoulder 26% 19% 22% 23% 10% Company Heard of
HUL Dadur ITC P&G Nestle
34. 34. 34 | P a g e 3) One advertisement of each of the companies is as follows:- 4) Which
of the following sentence is correct:- 1) HUL makes Water Purifiers 2) ITC deals in baby
napkins 3) None of these any company has any dealing with Tobacco business
According to our survey of 20 customers People said the 1st statement is correct (i.e.,
HUL makes Water Purifiers) 5) According to our survey of 20 customers these are the
Information:- Top 5 Favorite Brands 1) Dove 2) Wheel 3) Pepseodent 4) Lux 5) Fair &
Lovely Pepsode nt 25% Fair & Lovely 55% Lakme 10% Others 10% Ads Heard of
Classma te 47% Bingo 33% Dark Fantasy 13% Others 7% Ads heard of
35. 35. 35 | P a g e 6) According to the survey 43% of the people would like to invest in HUL.
While others are quite behind HUL in terms of investment preference. ITC has 20% of
investment preference. While Dabur has 19% of Investment preference. HUL ITC P&G
L'Oreal Dabur Investment Prefrence Investment Preference
36. 36. 36 | P a g e Recommendations Hindustan Unilever Limited Overall HUL's strategy on
focusing on mass category with well thought out brands seems to be working at present.
While this is a good strategy for a sustainable business, it needs to get its grip better and
firm in premium zed segment as that would help this company to improve its cash flow
also deal better with competition. RecommendedActions 1. Grow portfolio in premium
zed product category to improve gross profit margin at company level 2. Improve footprint
in Foods and Beverages category as current marketing campaigns does not seem to be
working good enough ITC Limited ITC has a huge reliance on Tobacco business which
makes it susceptible to any future health related regulations which if came in effect might
prove to be a big hindrance on the sustainability of the company. Hence emphasis should
be on reducing dependency on Tobacco business and growing other businesses.
RecommendedActions 1. Reduce dependency on Tobacco business by growing other
non-tobacco businesses 2. Marketing campaign needs to be brought on par with other
FMCG companies 3. Supply chain efficiency needs to be improved so as to free up
capital from inventory and invest it in marketing and advertising campaign
37. 37. 37 | P a g e Appendix http://www.hul.co.in/ http://www.itcportal.com/
http://www.hul.co.in/mediacentre/newsandfeatures/2014/HUL-recognised-at-Asia-
Marketing- Effectiveness-and-Strategy-Awards-and-Goafest.aspx
http://www.sanasecurities.com/compare-financial-analysis/itc-vs-hindustan-unilever