The FMCG titan under siege: Is Hindustan Unilever still a no-brainer investment?

Yet, the last five years have been a different story.

Since 2018, HUL’s stock has stagnated, delivering a ~3% CAGR, far below the ~12% CAGR of the Nifty 50. While ITC, Nestlé, and Tata Consumer surged ahead, HUL’s premium valuation has been hard to justify in the face of weak volume growth and slowing market share gains. Investors who once saw HUL as a “buy and forget” compounding machine are now questioning whether its golden era is over.

Despite its recent struggles, HUL remains a powerhouse.

With a Rs 5 lakh+ crore market cap, it is still India’s second-largest FMCG company. Its portfolio spans every household category, with Surf Excel, Lux, Dove, Horlicks, and Brooke Bond leading their respective markets. HUL holds the #1 or #2 positions in over 85% of its categories. Its distribution reach is unparalleled, with nearly 9 million retail outlets stocking its products — a competitive moat that has kept rivals at bay for decades.

So, if HUL is still an FMCG juggernaut, why has its stock been a laggard?

The answer lies in a fundamental shift in India’s consumer landscape. Younger buyers are moving away from legacy brands, opting instead for direct-to-consumer (D2C) insurgents like Mamaearth, WOW, and OZiva, who are growing at an astonishing pace.

At the same time, ITC has aggressively expanded its FMCG portfolio, using its deep pockets to steal market share in packaged foods and personal care. Meanwhile, Nestlé has consolidated its dominance in food and beverages, an area where HUL is still playing catch-up.

More importantly, how consumers buy products has changed.

The traditional model — where HUL’s strength lay in shelf space dominance and mass advertising — is being disrupted by Instagram-first brands, YouTube influencers, and quick-commerce platforms like Blinkit and Zepto. The old rules of the game no longer apply.

The big question now: Can HUL reinvent itself for this new world? Can it adapt to the rise of digital-first brands, shifting consumer preferences, and intensifying competition? Or has its golden era ended, leaving investors with a slow-moving, overvalued stock? Let’s find out.

Hindustan Unilever Ltd. Share Price Chart (Apr 20 till Dec 25)

Stock Price Movement of Hindustan Unilever Ltd. (Source: Screener)

Breaking down HUL’s business segments: Where does growth come from?

HUL’s business spans three key segments: (1) Beauty & Personal Care, (2) Home Care, and (3) Foods & Refreshment. Each of these has historically been a growth driver, but recent trends suggest that not all segments are firing on all cylinders anymore.

Brand Portfolio of Hindustan Unilever Ltd. (Source: Annual Report FY24)

Let’s break down what’s happening in each segment and whether HUL can sustain its market dominance.

1. Beauty & Personal Care (BPC): A slowdown in the cash cow?

Historically, Beauty & Personal Care (BPC) has been HUL’s most profitable segment, contributing 40%+ of total profits and enjoying high operating margins (~25%+). With brands like Lux, Dove, Lifebuoy, Pond’s, Close-Up, and Lakmé, this segment has been a key pillar of HUL’s success.

Beauty and Personal Care Segment. (Source: Annual Report FY24)

Beauty & Wellbeing: Struggling to hold market share in a changing landscape

HUL’s Beauty & Wellbeing business, which includes brands like Dove, Sunsilk, TRESemmé, Simple, and Vaseline, has traditionally been a high-margin segment and a key driver of premiumisation. Yet, its latest numbers reveal cracks in its dominance. Despite revenue growth of just 1%, the segment has witnessed a low-single-digit volume decline, signaling weak demand.

A major factor behind this underperformance is seasonal volatility. The delayed onset of winter directly impacted skincare brands like Pond’s and Vaseline, which typically see strong demand during colder months. However, the problem runs deeper than seasonal factors.

HUL’s legacy brands are facing increasing pressure from direct-to-consumer (D2C) disruptors like Mamaearth, Plum, and WOW Skin Science, which have successfully built a strong consumer base by positioning themselves as natural, chemical-free, and dermatologically safe alternatives. These new-age brands have grown rapidly by leveraging digital-first marketing strategies, an area where HUL has been slower to adapt.

The challenge for HUL is twofold: retaining its stronghold in the mass market while competing in the premium segment where newer brands are rapidly gaining ground.

With influencer-driven marketing shaping consumer choices in skincare and haircare, HUL’s traditional TV-heavy advertising strategy needs urgent reinvention. While its recent acquisitions in the wellness space, such as OZiva and Wellbeing Nutrition, suggest an effort to address this shift, the impact of these moves remains to be seen.

Beauty and Wellbeing Vertical: USG and UVG. (Source: Quarterly Report Dec FY24)

Personal Care: A segment in decline amid post-pandemic normalisation

Unlike Beauty & Wellbeing, which is struggling with competition, HUL’s Personal Care segment is battling a fundamental demand slowdown. The category, which includes brands like Lux, Lifebuoy, Close-Up, and Pepsodent, reported a 4% decline in sales, with mid-single-digit volume contraction, making it the company’s worst-performing segment.

The biggest factor behind this decline is the post-pandemic reversal of hygiene-related demand. During COVID-19, there was a surge in purchases of soaps, handwashes, and sanitisers, benefiting brands like Lifebuoy and Lux.

However, with hygiene consumption normalising, growth in these products has not just slowed but turned negative. Compounding this problem is increasing competition from ITC’s Savlon and Santoor, both of which have gained market share in recent years.

Oral care, another key category within this segment, is also showing signs of stagnation. HUL’s Pepsodent and Close-Up brands have struggled to compete against Colgate, which has strengthened its premium portfolio with offerings like Colgate Vedshakti and Visible White. Given that oral care remains a price-sensitive category, HUL’s ability to push premiumisation here remains limited.

The decline in Personal Care sales is particularly concerning because this was traditionally a steady growth segment. The hygiene-driven boom of 2020-21 masked some of these structural issues, but with consumer habits returning to pre-pandemic levels, HUL now finds itself in a more challenging competitive environment.

Personal Care Vertical: USG and UVG. (Source: Quarterly Report Dec FY24)

2. Home Care: The Surprise Growth Engine

HUL’s Home Care segment includes Surf Excel, Rin, Vim, Domex, and Comfort, covering detergents, dishwash, and household cleaners. It’s a lower-margin business than BPC but has become the company’s most consistent performer in recent years, delivering 6% sales growth, with volume growing in high single digits. The category has benefited from premiumisation and increasing household penetration.

Home Care Segment (Source: Annual Report FY24)

One of the key drivers of growth in Home Care has been the shift towards premium liquid detergents, particularly Surf Excel Matic, which has seen significant adoption. Unlike the beauty segment, where consumers are experimenting with newer brands, home care products like detergents and cleaners have strong brand loyalty, making it easier for HUL to pass on price increases without losing customers.

Another factor working in HUL’s favour is sustained hygiene awareness post-pandemic, which has helped maintain demand for Domex (disinfectants) and Vim (dishwashing liquids).

The resilience of this segment is important because it provides HUL with a stable revenue and margin base at a time when other categories are under pressure. Premiumisation in detergents, coupled with strong category leadership, makes Home Care the most reliable pillar of growth for the company.

Home Care Vertical: USG and UVG (Source: Quarterly Report Dec FY24)

3. Foods & Refreshment: The weakest link?

HUL’s Foods & Refreshment segment includes Brooke Bond (tea), Bru (coffee), Horlicks (health drinks), Kwality Wall’s (ice cream), and Kissan (jams and ketchup). This has historically been HUL’s smallest and slowest-growing segment, but the Rs 31,700 crore Horlicks acquisition from GSK in 2018 was supposed to change that.

Food and Refreshment Segment (Source: Annual Report FY24)

Horlicks and Boost, which were meant to strengthen HUL’s position in health and nutrition, have failed to grow as expected. The biggest hurdle has been shifting consumer preferences — India’s younger generation is moving away from malt-based health drinks, and the category itself has been growing at a sluggish 4-5% CAGR. While HUL has tried expanding Horlicks into bars, biscuits, and high-protein variants, these innovations have not significantly moved the needle.

Meanwhile, Brooke Bond and Bru continue to face strong competition from Tata Consumer’s Tata Tea and Nestlé’s Nescafé. The rapid growth of premium artisanal brands like Blue Tokai and Sleepy Owl in urban markets has further fragmented demand, making it harder for mass-market brands to expand.

In packaged foods, Kissan (ketchup) and Knorr (soups) remain niche players. While Kwality Wall’s has seen decent growth in the ice cream segment, it remains a highly seasonal, lower-margin business, limiting its ability to drive sustained revenue growth.

The foods business is where HUL needs a clear turnaround strategy. Without meaningful innovation or deeper penetration into high-growth categories, this segment could remain a drag on overall performance.

Foods Vertical: USG and UVG (Source: Quarterly Report Dec FY24)

Where will HUL’s future growth come from?

Despite the slowdown, HUL remains India’s largest FMCG company. However, the real question is — where will its next phase of growth come from?

The answer lies in a hybrid strategy — leveraging its legacy strengths while acquiring and scaling high-growth insurgent brands. While new-age direct-to-consumer (D2C) brands have disrupted traditional FMCG business models, most struggle to scale profitably, creating massive M&A opportunities for established players like HUL.

The D2C boom and its inevitable scaling problem

Over the past decade, India has witnessed an explosion of new consumer brands, particularly in the beauty, skincare, and functional food segments.

More than 3,000 new brands have emerged in the past 15 years, with 180 well-funded D2C startups entering the market since 2015. These insurgents have adopted digital-first models, using Instagram influencers, YouTube reviews, and quick commerce platforms like Blinkit and Zepto to gain traction.

The impact has been dramatic — insurgent brands in beauty and personal care have grown 7x since 2018, while those in food and beverages have expanded 6x over the same period. With funding from private equity and venture capital firms, these brands have aggressively targeted millennial and Gen-Z consumers, positioning themselves as clean, sustainable, and ingredient-first alternatives to legacy brands.

Growth in Various Categories by New-Age Brands (Source: DSG Consumer Partners)

However, despite their rapid growth, most insurgent brands struggle to scale profitably beyond a certain level. The median capital efficiency of insurgent brands is just 0.8x, meaning they burn far more capital than they generate in sales.

Scaling beyond digital platforms presents another major hurdle. While insurgent brands succeed in e-commerce, their penetration into offline retail — where over 90% of India’s FMCG sales still happen — is limited. Building a nationwide offline supply chain requires significant working capital, retailer incentives, and distribution expertise, all areas where HUL has a structural advantage.

This is where HUL stands to benefit the most. As insurgent brands hit a scaling wall, they often look for M&A exits, providing HUL with ready-made, fast-growing brands that it can integrate into its ecosystem and scale profitably.

HUL’s M&A playbook: Buying growth in the right places

M&A has become the dominant exit route for most D2C brands, with 125 consumer brand acquisitions in India since 2008 — far exceeding the number of IPO exits. The trend is clear: small brands are excellent at capturing niche markets but struggle to build long-term, scalable businesses, making them prime acquisition targets for larger FMCG players.

HUL has already made aggressive bets on high-growth, premium brands, particularly in beauty and wellness:

Minimalist (2024): This science-backed skincare brand, modelled after The Ordinary, has grown rapidly by appealing to consumers looking for ingredient transparency and dermatologically tested products. HUL’s acquisition gives it a strong foothold in premium skincare, where it previously struggled against new-age competitors like Plum and WOW Skin Science.

HUL’s Management on Minimalist (Source: HUL’s Concall Dec FY24)

OZiva & Wellbeing Nutrition (2022): These acquisitions mark HUL’s foray into nutraceuticals and functional foods, a high-margin category with an expected CAGR of 20% over the next five years. With rising health consciousness among urban consumers, plant-based protein, wellness supplements, and functional beverages represent a multi-billion-dollar opportunity.

Horlicks (2018): While the Rs 31,700 crore acquisition of Horlicks and Boost hasn’t delivered explosive growth yet, it cemented HUL’s leadership in the Rs 8,000+ crore health drinks market. Younger consumers have been shifting away from malt-based drinks, prompting HUL to expand the brand into newer formats like high-protein bars, biscuits, and ready-to-drink products.

The underlying strategy is clear — instead of competing directly with every new insurgent brand, HUL is acquiring the strongest ones and using its distribution power to scale them into mass-market winners.

Why smaller brands struggle to scale — and why that’s a positive for HUL

While insurgent brands have changed the rules of brand-building, they face significant barriers when trying to expand beyond their initial customer base. Three key challenges make it difficult for these brands to transition from D2C disruptors to mass-market leaders:

High Customer Acquisition Costs

Digital-first brands rely heavily on paid advertising, influencer marketing, and social media promotions, leading to high cost-per-acquisition (CPA) costs.

As digital ad rates increase, many brands struggle to maintain profitability without continuous funding.

HUL, with its established brand equity, does not need to spend aggressively on digital ads to sustain demand.

Limited Offline Distribution

E-commerce accounts for less than 10% of India’s total FMCG sales, making offline distribution critical for long-term survival.

Insurgent brands often lack the resources to build extensive retail partnerships, while HUL’s network spans 9 million outlets across urban and rural India.

Operational Inefficiencies and Supply Chain Costs

Scaling production, managing inventory, and optimising supply chains require significant working capital.

HUL’s economies of scale allow it to manufacture and distribute products at a fraction of the cost insurgent brands incur.

These challenges make M&A the natural path forward for many insurgent brands, ensuring that HUL continues to absorb high-growth players while maintaining cost efficiencies.

Premiumisation as a long-term growth engine

Beyond M&A, premiumisation within existing categories remains a crucial pillar of HUL’s growth strategy. While the mass-market segment has faced volume headwinds, premium variants of detergents (Surf Excel Matic), skincare (Dove’s premium range), and wellness products (Horlicks Protein+) have seen consistent demand growth.

This trend is particularly strong in Tier 2 and Tier 3 cities, where rising disposable incomes are driving aspirational consumption. Liquid detergents, premium skincare, and plant-based nutrition products are all positioned for strong growth in these markets.

Valuation, Premium P/E, and the road ahead

HUL has long traded at a premium valuation of 50-60x P/E, significantly higher than global FMCG peers like P&G (~25x) and Unilever Plc (~20x) and even domestic rivals like ITC (~25x).

This premium was justified by industry-leading Ebitda margins (~24-25%), strong ROCE, and deep market penetration across India. However, with slowing volume growth, rising competition, and shifts in consumer behaviour, investors are questioning whether HUL can sustain its high multiples.

Can HUL justify its valuation?

Three key factors will determine if HUL can sustain its 50-60x P/E multiple or face a valuation reset closer to 40x P/E:

Volume recovery in core segments: Personal care and foods need renewed demand. HUL must drive deeper rural penetration and affordability while sustaining premiumisation in urban markets.

Scaling acquisitions without margin dilution: Acquisitions like Minimalist, OZiva, and Wellbeing Nutrition offer premium growth, but HUL must ensure profitability while scaling these brands.

Defending market share against intensifying competition: With ITC growing ~20% YoY in FMCG, Nestlé strengthening food leadership, and digital-first insurgents scaling, HUL must innovate faster in marketing and product differentiation.

Upside versus Downside scenarios

Bull Case: If HUL revives volume growth to 5-7% CAGR, integrates acquisitions successfully, and expands premiumisation, it can perhaps justify its high P/E and maintain 10-12% long-term earnings CAGR.

Bear Case: If volume growth remains weak and competition erodes market share, valuation could compress to 40-45x P/E (or lower perhaps), bringing it closer to global FMCG benchmarks.

Note: This is not a prediction of where the stock price could head. It’s just an if-then calculation for academic purposes.

The way forward

HUL’s cash flows, capital efficiency, and brand dominance remain strong, but the company must adapt faster to a changing FMCG landscape. Digital transformation, deeper consumer engagement, and balancing affordability with premiumisation will be key to maintaining its premium valuation. While HUL remains India’s FMCG benchmark, the next few years will decide whether it continues to command its market-leading multiple or faces a valuation reset.

Note: We have relied on data from the annual report and industry reports for this article. For forecasting, we have used our assumptions.

Parth Parikh has over a decade of experience in finance and research, and he currently heads the growth and content vertical at Finsire. He has a keen interest in Indian and global stocks and holds an FRM Charter along with an MBA in Finance from Narsee Monjee Institute of Management Studies. Previously, he has held research positions at various companies.

Disclosure: The writer and his dependents do not hold the stocks discussed in this article.

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