High dividends and slowing growth make Unilever Nepal more bond than stock
The dividend king of Nepal’s stock market may have peaked early
Correction (June 18th 2025): We have updated EPS figures.
Unilever Nepal, a rare blue-chip oasis in Nepal’s volatile stock market, is the kind of stock investors dream about: debt-free, highly profitable and reliably generous. It is also, by some measures, getting a little boring.
The firm sits atop the country’s fast-moving consumer goods (FMCG) sector like a colossus in khakis. Its brands—Sunsilk, Glow & Lovely and others—line the shelves of 50,000 retail outlets and bathroom cabinets in 8 out of 10 households. It churns out more than 26,000 tonnes of products a year and pays dividends as if it were printing rupees. In the fiscal year 2080/81 shareholders were handed a cash dividend of 1,714%. That is not a typo.
And yet investors eyeing its shares must ask a simple question: is there more room to grow or has the company already cashed in its chips?
Dividends on steroids
First, the good news, of which there is plenty. Unilever Nepal’s balance sheet is the envy of corporate Nepal. It has no debt; boasts a rising equity base of NPR 4.74bn; and enjoys best-in-class returns on equity and assets (41.7% and 27.4% respectively). Its operations are lean: current liabilities fell 11% year on year in the third quarter and current assets rose 5%. Even its workforce stands out for its near-30% female participation and an unblemished safety record.
It also does not dilute its shareholders. UNL has never issued bonus shares. It treats its owners like royalty, doling out colossal cash dividends year after year. This means earnings per share remain concentrated and return ratios robust, a rarity in a country fond of bloating capital bases through scrip issues.
All of this would suggest a stock worth hoarding. Indeed, many do. But that’s where the issue comes in.
UNL trades at a trailing p/e ratio of 21.56—lofty for its industry, though not outrageously so compared with other shares. Still, the stock is priced nearly 193% above its Graham number, a benchmark for intrinsic value favoured by conservative investors. Its price-to-book multiple stands at a nosebleed 8.96, rich even by regional standards. Suresh Uprety, a former analyst at Ansu Invest who covered UNL, thinks its intrinsic value is NPR 37,000.
More telling is what the market is doing. UNL’s share price has slipped from a 52-week high of NPR 55,000 to NPR 46,121.27, a clear sign of investor caution. While hardly a collapse, the retreat suggests even the most devoted holders are beginning to ask: is this as good as it gets?
Defenders argue such valuations are justified by quality. After all, UNL’s profitability dwarfs its peers. But cracks are beginning to show.
Revenue slid 1.45% year on year in the third quarter. Net profits fell by 0.8%. Earnings per share, which stood at NPR 572 in the first quarter, had tumbled to NPR 524 by the third. The return on equity, though still high, fell nearly nine percentage points in a year. Quarter on quarter earnings dropped more than 30%, suggesting not only seasonality but stagnation.
Meanwhile its dividend payout ratio is now over 80%, leaving less room for reinvestment. The company appears to be maximising returns rather than pursuing expansion, a tell-tale sign of a mature business.
It is easy to forget UNL operates in a small, slow-growth market. Nepal’s GDP per capita is under $1,500. Household consumption is soaring, but not fast enough to move the needle for a firm already penetrating most homes. Unlike in India or Bangladesh, demographic or urbanisation tailwinds are less dramatic here. And UNL’s product categories—soap, shampoo, detergent—have limited room for premiumisation or diversification in a price-sensitive economy.
To its credit, the company is not resting on its laurels. Its “Compass” strategy promises 4G growth: growth that is consistent, competitive, profitable and responsible. There is some merit in that. A low-debt, ESG-aware, dividend-paying business with stable margins is no small achievement. But in market terms, the “G” that really matters is the one investors obsess over: growth. On that front, the engine is idling.
Context, context, context
Relative to its peers, UNL still shines. It is far from the speculative froth of OMPL (trading at a laughable 856 times earnings) or the penny-pinched valuations of NLO (with a p/e of 3.38). Its PEG ratio—a more forgiving metric for growth stocks—sits at 0.72, implying there may still be value if earnings tick up.
But therein lies the risk: the share price already bakes in a rebound that has not yet materialised. And unlike tech or manufacturing firms that might ride a new wave of demand, an FMCG firm in a saturated market has fewer levers to pull. Cost cuts, better logistics or brand refreshes can help at the margin. But unless the middle class grows dramatically, or digital channels explode in reach and profitability, growth will remain pedestrian.
In sum, Unilever Nepal is a superb business, but perhaps not a superb investment at current prices. Its market dominance, brand strength and balance sheet resilience make it a rock in stormy waters. For conservative investors, pension funds or dividend-chasers, it is a godsend: as close to a fixed-income instrument as equities get in Nepal.
But for the growth-hungry, the picture is less flattering. UNL is less a launchpad and more a landing zone, a place to park capital rather than to double it. The market has priced in perfection. It may not punish imperfection harshly. But nor will it reward stagnation.
As in the shampoo aisle, the promise of "new and improved" often hides the same old formula. ■
Data source: Nepse Alpha; Sharesansar