22 July 2020
| Sector: Consumer
Progress on GCKCH business on track, promise remains high
HUVR hosted a call to provide an update on the GSKCH merger (effective from
Apr’20) and prospects. Here are the key highlights:
Management remains confident on not only double-digit sales growth
prospects for the GSKCH business but also a 550–700bp EBITDA margin
improvement over the medium term, an impressive combination
The company identified media buying, procurement, technology and data,
supply chain, and manufacturing efficiencies as key drivers for medium-
term margin improvement for the GSKCH business.
Despite lockdown and integration from 1 April 2020, GSKCH (as shared in
the 1QFY21 results update) not only grew 5% YoY but also contributed
positively to margins (180bp margin decline YoY at merged level ex-GSKCH
was restricted to 120bps decline including GSKCH).
We expect topline and earnings growth in the GSKCH business to be even
better going forward in FY21. This is largely attributed to its focus on
nutrition (in high demand in the ongoing environment) and tailwinds in
favor of products that see high in-home consumption and incur low
material costs (milk and barley).
31% baseline EBITDA margins for the GSKCH business are impressive, aided
by the absence of royalty after HUVR acquired the brand license recently.
This is accretive to base business margins of 24.8% for HUVR in FY20.
While Goodwill arising from the deal would dilute RoCE to ~30% levels in
the near term (RoCE ex-Goodwill would still be over 100%), strong earnings
growth in HUVR’s base business (further aided by potentially strong
prospects in GSKCH, as indicated above) implies that ROCEs could be back
above 60% levels within four to five years. The base business has reported
an impressive 17% EPS CAGR over the past three years even as most peers,
many of whom are much smaller, have struggled to grow their EPS to the
double digits. Thus, we see no material risks to the valuation multiples.
Valuation and view:
There has been no change to our EPS numbers. The
company’s earnings growth has gained further momentum in recent years
(17% EPS CAGR over the past three years v/s ~12% CAGR over 10 years).
HUVR’s best-of-breed analytics and execution ability (exhibited by the
successful implementation of the WIMI strategy, cost-saving plans, herbals,
etc.) are key factors driving the pace of earnings growth. The scale of
HUVR’s P&L v/s peers offers the company significant levers for superior
management of costs even beyond what was already witnessed in 1QFY21.
Even in FY20, the company managed to carve out as much as 7% of sales on
We remain positive on HUVR from a medium-term perspective, encouraged
by: a) robust earnings growth potential beyond the near term owing to its
portfolio and execution strengths and b) significant synergies in FY22E as a
result of GSKCH. These factors suggest premium multiples are likely to
sustain. We maintain target multiple of 55x Jun’22 merged EPS, as well as
TP of INR2,550, implying a 13% upside.
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
5278.4 / 72.8
2614 / 1660
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Financials & Valuations (INR b)
Sales Gr. (%)
EBITDA mrg. (%)
Adj. EPS (INR)
EPS Gr. (%)
Div. Yield (%)
72.0 65.5 50.9
60.5 10.7 10.6
50.0 45.8 37.3
86.0 28.2 21.0
96.2 101.9 115.5
119.1 119.8 38.5 28.3
2019 2020 2021E 2022E
382.2 387.9 439.4 507.4
1.5 13.3 15.5
96.0 112.4 137.7
24.8 25.6 27.1
67.4 80.5 103.5
31.2 34.3 44.2
11.1 10.0 28.6
37.2 209.3 211.2
Shareholding pattern (%)
FII Includes depository receipts
Krishnan Sambamoorthy – Research analyst
Research analyst: Pooja Doshi
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.