Hindustan Unilever
BSE SENSEX
28,288
S&P CNX
8,263
19 March 2020
Update | Sector: Consumer
CMP: INR1,837
TP: INR2,425 (+32%)
No reversal yet in last quarter’s slowdown
Buy
We interacted with Hindustan Unilever’s (HUVR) management to get an update on the
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
market conditions. Key takeaways:
HUVR IN
2,165
3976 / 55.4
2307 / 1650
12/23/34
2946
32.8
Slowdown continues into 4QFY20
Slowdown seen in the last quarter has continued into 4QFY20 with many
categories reporting flattish sequential growth. In fact, some personal care
categories are reporting de-growth. Rural continues growing at 0.5x urban
growth.
Over the past week, HUVR has witnessed strong growth not just in hand
washes but also in soaps, which had otherwise shown a disappointing trend in
the first two months of the quarter.
Offtake from retail stores has been higher this week in household care
products like detergents, floor and toilet cleaners. Unlike soaps and hand
washes, higher sales for these products this quarter could affect demand for
1QFY20.
So far, it is business as usual, but more the restrictions in the movement of
people the more it would cause disruption in the business. Technology though
could limit the impact. Government decision on closure of retail shops on
alternate days, if prolonged, could impact demand over the next few weeks.
Premiumization trend remains strong.
Competitive intensity and ad-spend intensity in the FMCG space remains
similar
to the preceding quarter.
GSKCH likely to be merged from 1
st
Apr’20
and the ongoing disruptions are
unlikely to change the time of the merger.
Uptick across skin cleansing products recently
Financials & Valuations (INR b)
Y/E March
2020E 2021E
Sales
400.7 439.9
Sales Gr. (%)
4.8
9.8
EBITDA
100.5 112.6
EBITDA mrg. (%)
25.1 25.6
Adj. PAT
70.5 81.2
Adj. EPS (INR)
32.6 37.5
EPS Gr. (%)
12.6 15.2
BV/Sh.(INR)
36.2 35.3
Ratios
RoE (%)
91.1 105.1
RoCE (%)
126.0 143.2
Payout (%)
97.6 102.3
Valuations
P/E (x)
56.4 49.0
P/BV (x)
50.8 52.1
EV/EBITDA (x)
39.0 34.8
Div. Yield (%)
1.4
2.1
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
2022E
497.0
13.0
129.8
26.1
95.1
43.9
17.0
33.9
127.0
171.0
103.2
41.8
54.2
30.2
2.5
Customers also buying other products more this week
Disruptions in channel due to coronavirus outbreak
Other points
Dec-19 Sep-19 Dec-18
67.2
6.7
12.3
13.8
67.2
6.7
12.4
13.7
67.2
7.4
12.0
13.4
Valuation and view
Despite the near-term demand blip, earnings CAGR for the next two years is likely
come in impressive at 16%. If we take the GSKCH merger into account (not in our
projections yet), EPS CAGR could be even more remarkable at ~22% over FY20-22.
Such earnings growth projections are extremely striking, especially for a company
of the size of HUVR. This in fact also provides comfort on HUVR maintaining its
stupendous wealth-generation track record and outperformance versus smaller
peers. Moreover, we see an upside risk to our operating margin expansion
forecast of 50bp/50bp for FY21/22 if the factors driving HUVR’s strong earnings
growth continue contributing as they have been in recent years. This is not
unlikely given the past five years’ EBITDA margin expansion of 830bp. With best-
of-breed earnings growth and far-superior RoE compared to peers, we maintain
our target multiple of 50x FY22E EPS on the merged numbers, resulting in a target
price INR2,425 (32% upside). Maintain
Buy.
FII Includes depository receipts
Stock Performance (1-year)
Hind. Unilever
Sensex - Rebased
2,600
2,300
2,000
1,700
1,400
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 6129 1545
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com); +91 22 6129 1547 |
Pooja Doshi
(Pooja.Doshi@MotilalOswal.com); +91 22 5036 2689
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.