22 September 2017
Update | Sector: Consumer
TP: INR1,400 (+13%)
Expect gradual improvement
CSD segment yet to recover to normalcy
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val ( INRm)/Vol m
Free float (%)
1286 / 783
We spoke with Hindustan Unilever’s (HUL) management to understand the latest trends
in its business. Key takeaways:
Financials Snapshot (INR b)
2017 2018E 2019E
EPS Gr. (%)
Shareholding pattern (%)
Jun-17 Mar-17 Jun-16
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
GST impact – recovering, but still not completely out of woods
Wholesale in the south and west regions has returned to normative levels.
Other parts are still lagging, though.
Cash and Carry is picking up some slack from the slowdown in wholesale.
For July sales, offline reconciliation on GST has been done with all leading
distributors. It will take until October for complete reconciliation.
Canteen Stores Department (CSD) is going through a transformation on
checks and balances. Thus, up-stocking has not yet happened. Sales are not
completely normal even now from this channel.
Rural demand is expected to improve gradually. Early to call out now.
There have been clear signs of pressure on small players; expect market
share improvement for organized and larger players with direct reach.
GST accounting – detailed impact to be explained with 2QFY18 results
Turnover will reset downward because of passing on of GST benefits.
Multiple cost lines items of P&L will benefit from input credits. These have
also been passed on.
Absolute EBIT and EBITDA will not change on GST accounting, but margins
will be higher.
Management will explain GST accounting-related impact in detail post
Other points worth noting
No significant price changes in the quarter.
Input costs for items like palm oil and crude-led raw materials have been
moving up, but not worryingly so.
Competitive intensity on advertising is not low. HUL did not call out their
Lever Ayush outside south India has progressed well in terms of
distribution in the first couple of months of launch. Too early to call out
response on demand.
Last year, it had dividend income from subsidiaries in the September
quarter, which is likely this year as well.
Valuation and view:
We expect HUVR to report 18% PAT CAGR over FY17-19,
as against 6.1% in the last three years, 10.6% in the last five years and 10.7% in
the last 10 years. While valuations are not cheap at 45.2x FY19E EPS (given
potentially strong earnings growth), we believe premium valuations are
justified, particularly as return ratios and dividend yield remain best-of-breed.
We maintain our
rating on the stock with a target price of INR1,400 (46x
Sep’ 2019E EPS; 10% premium to three-year average valuations).
Krishnan Sambamoorthy – Research Analyst
(Krishnan.Sambamoorthy@MotilalOswal.com); +91 22 3982 5428
Vishal Punmiya – Research Analyst
(Vishal.Punmiya@MotilalOswal.com); +91 22 3980 4261
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.