Breakingviews - Unilever India boss's first job is a deep clean
The management rejig, which fuelled a 5% surge in Hindustan Unilever's (HUL) (HLL.NS), opens new tab shares on Friday, follows a change of guard at the London-headquartered group and years of weak performance at the Indian unit. Over the past two years, HUL's sales grew just 2%, far behind Nestle (NEST.NS), opens new tab which managed 9%. This bleak performance is captured in the Mumbai-listed shares. HUL trades at 52 times the unit's expected earnings for 2025, lagging Nestle India, which trades at 68 times.
There are multiple reasons for this yawning gap. To start, the owner of the Lakme beauty brand is failing to keep up with homegrown challengers like $7 billion Nykaa (NYKA.NS), opens new tab and $1 billion Honasa Consumer's (HONA.NS), opens new tab Mamaearth, which offer more differentiated beauty products to the well-heeled and upwardly mobile Indian consumers. At the lower end of the market, private labels, opens new tab are finding favour with shoppers on a budget. HUL reacted to the trend with a new strategy involving a $311 million acquisition of skincare brand Minimalist in January, among other things, but it needs to do more. It could consider adding Temasek-backed fast-growing packaged snacks maker Haldiram's to complement its portfolio. Introducing global brands like Ben & Jerry's ice cream or Maille condiments would offer an easy refresh of its India shelves too.
A shifting market structure has pulled the rug from under the vaunted distribution model of the Brooke Bond tea maker. Urban Indians are increasingly ordering everything from milk to lipstick through apps like Blinkit, backed by $28 billion food delivery champion Eternal (ETEA.NS), opens new tab, which offers 10-minute deliveries and a superior product selection. HUL is yet to update its supply chains to keep up with the speedy replenishment this channel demands. This is a problem given this end of the grocery market is growing 70% annually, per Bernstein.
Nair currently presides over Unilever's beauty business and is an old India hand. That sets her up nicely to tackle the aforementioned issues. And if she manages to revitalise the business, it will also help the larger Unilever group, which owns 62% of the Indian unit. But given how far Unilever's Indian business is lagging, the cleanup will take time.
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