12 December 2018
Update | Sector: Consumer
TP: INR2,378 (+19%)
Demand outlook similar to 2QFY20
We spoke to the management of Hindustan Unilever (HUVR) for an update on the
overall market condition. Key takeaways highlighted below:
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
4343.6 / 61.3
2187 / 1650
Demand environment showing no signs of improvement
The demand scenario is similar to last quarter with no major improvement or
Rural demand has seen slight sequential slowdown.
The company doesn’t see sharp demand turnaround for another two quarters.
Rising raw material cost in a weak environment
Financials Snapshot (INR b)
2019 2020E 2021E
EPS Growth (%)
382.2 408.9 466.3
86.4 100.6 120.3
Since Oct’19, palm oil prices have started inflating and the company will view
its implication on a blended basis. However, the company believes that it’s too
early currently to decide on a price increase.
The company took the balance 3% price cut in Oct’19, as guided in its 2QFY20
Premiumization trend continuing
HUVR has seen no major downtrading during the quarter.
Premiumization as a trend is continuing.
Further, premium as a proportion of overall sales is holding up decently.
119.1 127.3 146.4
Shareholding pattern (%)
Sep-19 Jun-19 Sep-18
The company is seeing slight sequential improvement in channel liquidity and is
offering some credit wherever required.
HUVR is seeing nothing extraordinary in ad-spends or competitive intensity.
It will continue its focus on developing the market and the premium segment.
Modern Trade is growing well ahead of General Trade.
FII Includes depository receipts
Stock Performance (1-year)
Sensex - Rebased
Valuation and view
Four key trends are particularly relevant to HUVR as they point toward an
elevated earnings growth trajectory compared to the past. These include (a)
rapidly improving adaptability to market requirements, (b) recognition and
strong execution of the Naturals segment, (c) a continuous strong trend toward
premiumization, and (d) extensive plans to employ technology, creating further
Once we incorporate the GSKCH merger (no clarity on the date yet), there
could be 8-9% addition to EPS in FY21, which means that the stock trades at
~45.1x FY21E v/s 49.1x as it appears now.
Given HUVR’s best earnings growth visibility in the Indian large-cap consumer
space and by far the highest return ratios, we believe that the premium
valuations are justified.
On a target multiple of 50x Dec’21E EPS, we derive a TP of INR2,378/share.
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@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.