Unilever Wants To Repeat Indian Succcess In Indonesia

May 30th, 2012 by Trefis Team
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Unilever

Indonesia ranks high on Unilever‘s (NYSE:UL) priority as a key driver of its future growth and profitability. Unilever has doubled its revenue from Indonesia in the past five years to $10.8 billion in 2011 and expects to further double its size over the next five years, counting on the favorable trends currently at work in the country. Not only has the Indonesian market grown at double the average growth rate of Unilever, it has also emerged as a more profitable market compared to the company’s global average. As the company continues to invest in the market to tap into the booming domestic demand, Indonesia is also being developed as a base for expanding market share in other South East Asian markets as well as Australia. Given this pace, it might well replace India as Unilever’s biggest market in Asia. Unilever is the second largest consumer goods company globally after Procter & Gamble (NYSE:PG).

View our detailed analysis for Unilever here

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Indonesia has a huge market of around 240 million people, half of which are the growing middle class, and it has become one of the most promising markets for global fast moving consumer goods (FMCG) producers like Unilever. The market has grown in double digits in 2010 and 2011, with strong growth of existing as well as new categories, particularly home care and personal care. The growth has been driven by two strong and accelerated trends in demand – consumers in bigger cities upgrading from more basic to premium products and rural consumers moving from proxies into entry-level FMCG products –  necessitating a broad brand portfolio to tap into the rising demand.

While Unilever’s Indonesia growth has so far capitalized largely on growth in Java, it is now increasingly trying to penetrate deeper into the countryside, particularly in the outer islands like Sumatra and Sulawesi. Higher demand for premium quality products has also provided an upside for margin growth in the fast-growing urban markets in Indonesia. These strong growth trends are likely to stay dominant over the coming decade and have turned Indonesia into a priority market for Unilever.

Infrastructural Investments

Indonesia’s infrastructural investments so far have lagged behind the overall economic and market growth, particularly when it comes to connectivity with the outer islands away from Java. Tapping the strong volume growth in the expanding markets of Sumatra and Sulawesi still require further investments to expand Unilever’s manufacturing base and to build an efficient supply chain network.

Driven by optimism for growth in the Indonesian market, the consumer goods giant has already invested more than $626 million over the past five years. It had allocated $375 million for Indonesian capacity expansion from 2010-12. It currently operates two manufacturing facilities in Indonesia (Cikarang, Rungkut) and is likely to extend its Rungkut (Surabaya) manufacturing facility to meet the increasing market demand in Indonesia as well as South East Asia.

We have a $33 Trefis price estimate for Unilever stock, at a 5% premium to the current market price.