16 September 2020
Update | Sector: Consumer
Hindustan Unilever
BSE SENSEX
39,303
S&P CNX
11,605
CMP: INR2,143
TP: INR2,670 (+25%)
BUY
Staples remains resilient with recovery in Discretionary
We interacted with the management of Hindustan Unilever (HUVR) for an update on
overall market conditions. Here are the key takeaways from our discussion:
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 (%)
Essentials v/s Discretionary
HUVR IN
2,345
5034.4 / 67.9
2603 / 1749
-5/-15/12
7587
38.1
Financials & Valuations (INR b)
Y/E March
2020 2021E
Sales
387.9 439.4
Sales Gr. (%)
1.5 13.3
EBITDA
96.0 112.4
EBITDA mrg. (%)
24.8 25.6
Adj. PAT
67.4 80.5
Adj. EPS (INR)
31.2 34.3
EPS Gr. (%)
11.1 10.0
BV/Sh.(INR)
37.2 209.3
Ratios
RoE (%)
86.0 28.2
RoCE (%)
119.8 38.5
Payout (%)
96.2 101.9
Valuations
P/E (x)
68.6 62.4
P/BV (x)
57.6 10.2
EV/EBITDA (x)
47.7 43.6
Div. Yield (%)
1.2
1.6
2022E
507.4
15.5
137.7
27.1
103.5
44.2
28.6
211.2
21.0
28.3
115.5
48.5
10.1
35.5
2.4
Background: 80% of the portfolio comprising Essentials – such as Soaps,
Detergents, Tea, Oral Care, etc. – grew at 6% in 1QFY21. Of the remaining 20%
portfolio, 15% declined by 45% while the rest 5% declined by 69% during the
quarter.
In 2QFY21, the Essentials-led portfolio (80%) continued to be resilient.
Skin Care – the largest segment of the remaining 20% portfolio – performed
poorly in 1QFY21, but has started to recover consistently since June (although
it is yet to turn positive YoY). Recovery has also been seen in the Water Purifier
business, which was adversely affected in 1QFY21.
With the Ice-Cream business being a washout in 1QFY21, it contributed
significantly to business decline in the quarter. However, the Ice-Cream
business is much less salient in the base quarter of 2QFY21 (2QFY20) v/s
1QFY21. Therefore, 2QFY21 is not expected to be as drastically impacted by
the Ice-Cream business as 1QFY21.
The rural outlook is improving, but management would observe the
progression of the monsoons before conclusively announcing a robust rural
growth outlook for 2HFY21.
The GSK business was affected by temporary plant shutdowns due to COVID-
led disruption and some labor issues. Hence, it may have less-than-optimal
additions for the quarter.
The in-home consumption outlook remains strong, leading to an encouraging
trend for GSK products for 2HFY21.
The temporary shutdown at HUVR’s Haridwar plant due to COVID issues did
not affect operations owing to adequate inventory buffers.
Price increase was taken in Tea, whereas Detergents saw price reduction in
some brands in certain geographies. The overall pricing impact is positive as a
result of these actions.
The adverse mix impact seen in 1QFY21 is not expected in 2QFY21, but
downtrading would pressure margins.
The company maintained its cautious view (highlighted in the June quarter) on
margin growth in the core business for the year. This cautiousness is unlike the
guidance in the previous years.
Rural outlook
GSK business
Shareholding pattern (%)
As On
Jun-20 Mar-20 Jun-19
Promoter
61.9
67.2
67.2
DII
8.3
6.7
6.9
FII
14.8
12.1
12.1
Others
15.0
14.1
13.8
FII Includes depository receipts
Stock Performance (1-year)
Hind. Unilever
Sensex - Rebased
Operational issues
Pricing, mix, and margins
2,500
2,000
1,500
1,000
Krishnan Sambamoorthy – Research analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research analyst: Dhairya Dhruv
(Dhairya.Dhruv@motilaloswal.com)
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.