Rohit Jawa Takes Over As HUL CEO: What Lies Ahead

June 27 marks the first day in office for Rohit Jawa, who steps in as the chief executive officer and managing director at Hindustan Unilever Ltd., after Sanjiv Mehta retired, leaving the reins of India's largest consumer goods maker in his hands.

Jawa—who was previously chief of transformation at parent Unilever Plc.—inherited a company that delivered an impressive compound annual growth rate of 20% in total shareholder return and 13% growth in operating profit over the last 10 years. Ebitda margin expanded by 860 basis points between 2013 to 2023, but not at the cost of growth—it was led by market development and premiumisation along with an acute cost focus.

The stock's price-to-earnings multiple has nearly doubled from 25-30 times to 50 times—the highest in the sector.

During Mehta's 10-year tenure, the maker of Surf Excel achieved a more than fourfold jump in market cap to Rs 6.23 lakh crore, reinforcing HUL as one of India’s most valuable businesses.

HUL has also seen commendable market share gains across its portfolio, successful mergers and acquisitions—including its ‘historic merger’ with GSK Consumer Healthcare, bringing Horlicks and Boost into its fold—and 30% of demand captured digitally. HUL's turnover also crossed the Rs 50,000 mark under Mehta's leadership.

Mehta's key achievements also include building bigger brands. HUL now has 19 brands with a turnover exceeding Rs 1,000 crore, as against 10 in 2013.

According to Nuvama Institutional Equities, at the heart of Mehta’s success has been the proposition of long-term value creation anchored by growth. The shareholders are brimming with hope that Jawa will succeed in taking HUL to new heights, building on Mehta's legacy, it said. The optimism stems from the fact that Jawa had the highest experience of 35 years prior to becoming CEO of HUL, among the last seven CEOs from 1990 to 2023.

Jawa also has a thorough understanding of the Indian FMCG market, as he had earlier headed West India's sales and operations. He has also led the transformation of Unilever’s businesses in highly digitised China and the Philippines.

Here's a list of tasks that await him, according to analysts:

• Accelerate growth in the nutrition portfolio, particularly Horlicks' base variant consumption among both adults and children. HUL has already started the journey of market development through sampling, so gains are expected during FY23–FY28, i.e., during Jawa's tenure.

• Scale up recent acquisitions in the emerging D2C space and remain agile to do more acquisitions in D2C, given that it is a buyers’ market.

• HUL had lost future profit pools in the premium beauty and personal care segments to startups. This trend has somewhat reversed in the last 12 months. ICICI Securities analysts expect Jawa to accelerate this.

• Jawa takes over at a time when rural volumes for HUL are in the negative. In FY23, HUL's rural volumes fell 7%, with the fourth quarter registering a 3% decline in growth. High single-digit volume growth is integral to HUL’s ability to drive double-digit revenue growth. As price-led top-line growth tapers off, the focus now turns to volume.

• Jawa is expected to balance driving inorganic and organic growth, particularly in the context of likely higher inflation in this decade versus the previous one.

• Deal with transformation in the sector amid fast-paced digitisation of the entire value chain, the entry of Reliance Industries Ltd. in the FMCG space, etc.

• According to BNP Paribas, mature categories, including hair oil and oral care, have seen a mere 3-4% revenue CAGR over the last seven years. Divesting non-core brands and those brands where the probability of successful rejuvenation may be low is key. For example, Pepsodent

• The approach towards innovation has to change from the past, where FMCG firms followed a 'spray and pray' model, according to Jefferies.

• Environmental, social, and corporate governance are crucial at HUL, with several initiatives under way on water, diversity, equity, and inclusion. The most challenging of all is recycling plastics.

• Drive premiumisation further. HUL's revenue share of premium products increased from 22% in FY12 to 33% in FY23.

Jawa will need a multipronged approach to decide the future of HUL.

The street awaits Jawa's ability to articulate his strategy during the first-quarter earnings meeting.

"HUL is an emotion that has been a big part of me for the last ten years," Mehta wrote in a LinkedIn post, a day after HUL’s 90th annual general meeting, where he passed on the baton to successor Jawa. 

"Today's India is full of opportunities, and the consumer story is getting more exciting as it evolves," wrote Jawa, in a LinkedIn post. Acknowledging Mehta's leadership as "extraordinary and transformational", he said: "It's our time to make a real difference through our business and brands and continue to touch the lives of many."