Hindustan Unilever
BSE SENSEX
49,802
S&P CNX
14,721
17 March 2021
Update | Sector: Consumer
CMP: INR2,229
TP: INR2,690 (+21%)
Buy
Discretionary demand recovers on positive metro sales
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 (%)
HUVR IN
2,345
5237.6 / 72.2
2603 / 1749
7/-23/-52
8586
38.1
Financials & Valuations (INR b)
Y/E March
2021E 2022E 2023E
Sales
456
508
576
Sales Gr. (%)
17.5 11.4 13.5
EBITDA
113
135
156
EBITDA mrg. (%) 24.9 26.6 27.0
Adj. PAT
80
98
115
Adj. EPS (INR)
34.1 41.7 48.9
EPS Gr. (%)
9.3 22.1 17.3
BV/Sh.(INR)
208.1 216.0 215.9
Ratios
RoE (%)
28.2 19.7 22.6
RoCE (%)
38.2 26.5 30.5
Payout (%)
102.5 101.9 100.2
Valuations
P/E (x)
65.3 53.5 45.6
P/BV (x)
10.7 10.3 10.3
EV/EBITDA (x)
45.0 37.7 32.5
Div. Yield (%)
1.6
1.9
2.2
Shareholding pattern (%)
As On
Dec-20 Sep-20 Dec-19
Promoter
61.9
61.9
67.2
DII
10.7
10.8
6.7
FII
14.9
14.5
12.3
Others
12.5
12.7
13.8
FII Includes depository receipts
Stock Performance (1-year)
Hind. Unilever
Sensex - Rebased
3,600
2,900
2,200
1,500
We interacted with the management of Hindustan Unilever (HUVR) for an update
on overall market conditions. Here are the key takeaways:
Macro environment
The overall FMCG sector is seeing steady revival.
Urban growth, led by smaller urban centers, has been positive in recent
months.
Since Jan’21, metro and modern trade sales have been positive.
The good winter season demand seen in November and December continued
into January and February.
Broad segmentals and key components
Given 9% decline in overall sales in 4QFY20, all of the categories are likely to
report strong growth, especially with the addition of GSKCH.
On a sequential basis, some demand (amount unspecified) in skin cleansing
and home consumption products has tapered off.
Discretionary products (15% of sales – flat in 3QFY21, after 25% decline in
2QFY21 and 45% decline in 1QFY21) and OOH (5% of sales – 15% decline in
3QFY21, after 25% decline in 2QFY21 and 69% decline in 1QFY21) continued to
post improving sequential growth. Recovery in urban, particularly metros, and
modern trade (indicated earlier) has played a big part on this front.
Importantly, from the margin perspective, the Laundry category has recovered
as people have started stepping out more in the past 3–4 months and the
earlier bulk buying impact has worn off, leading to fresh purchases.
Costs and margins
Ad spends are increasing as consumer confidence rebounds.
EBITDA margins would improve YoY off a low base – both on standalone and
consolidated bases, due to the inclusion of the high-margin GSKCH business –
but maybe flat sequentially due to ongoing material cost increases.
Realization growth in 4Q would be substantially higher than 3Q, primarily on
account of price increases taken in December and January.
Valuation and view
As mentioned in our
Corner Office note
and
detailed note on the Annual
Report,
the structural and near-term investment case for HUVR remains strong.
The company’s earnings growth has gained further momentum in recent years
(17% EPS CAGR in the three years ended FY20 v/s a ~12% CAGR over the last 10
years). This is particularly impressive given the weak mid-single-digit earnings
growth posted by (much smaller) peers in recent years. HUVR’s best-of-breed
analytics and execution capabilities (demonstrated via the successful
implementation of the WIMI strategy, cost-saving plans, herbals, etc.) are key
factors driving the pace of earnings growth.
With the resumption of growth in the high-margin categories of a) Discretionary
products and b) Detergents, the EPS growth trajectory going forward is likely to
return to a CAGR in the high teens from FY22. Significant synergies from GSKCH
are also likely to be observed from FY22.
HUVR is trading at 45.6x FY23E EPS, a substantial discount to its historical five-
/three-year forward P/E of 51.4x/57.5x.
Valuing the company at 55x FY23 EPS,
we arrive at TP of INR2,690. Buy.
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com)
Research Analyst: Dhairya Dhruv
(Dhairya.Dhruv@MotilalOswal.com)/Kaiwan
Jal Olia
(kaiwan.o@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.