Hindustan Unilever Versus Nestle India: ICICI Securities' Analysis

ICICI Securities Report

We believe Nestle India Ltd. may potentially outperform Hindustan Unilever Ltd. in long term driven by multiple favorable factors (both extrinsic and intrinsic). In Nestle, we like:

• Penetration-led volume growth on the back of rural expansion (Nestle India has the lowest rural revenue salience (~20%) among peers).

• Lower threat from direct-to-consumer brands given the inherent challenges in scaling up in foods category.

• Opportunity to bring more from global portfolio in true long term (Nestle India operates in just four categories out of seven categories globally).

• Getting incrementally important for parent (India is outperforming other markets).

• Better operating margin expansion headroom (Nestle India’s operating margin has been stable in the range of ~20-24%) versus most in staples at near-peak margins.

• Beneficiary of long-term tailwind of consumer preferring convenience.

Nestle India has relatively lower salience from rural areas (20%; one of the lowest in our coverage) compared to HUL which has been a pioneer in driving penetration-led growth in rural areas through smaller packs and brand architecture. We note that rural regions are one of the large drivers of volumes for most of the fmcg companies.

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