Hindustan Unilever
BSE SENSEX
25,310
S&P CNX
7,702
8 December 2015
Update
| Sector:
Consumer
CMP: INR826
TP: INR810 (-2%)
Neutral
Maneuvering pricing in a deflationary environment
Delayed winter a risk for 3Q performance
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)/(USD b)
Avg Val ( INR m)
Free float (%)
HUVR IN
2,163.5
979/744
7/6/11
1,787.1/26.8
1,427
32.8
Financials Snapshot (INR b)
Y/E March
2015 2016E 2017E
Sales
301.7 320.5 357.3
EBITDA
51.0
56.9
62.3
Adj. PAT
37.9
40.8
44.4
Adj. EPS (INR)
17.5
18.9
20.5
EPS Gr. (%)
6.4
7.9
8.8
BV/Sh.(INR)
17.2
16.4
12.9
RoE (%)
108.1 112.4 140.2
RoCE (%)
137.6 148.1 186.2
Payout (%)
85.7
89.5
99.8
Valuations
P/E (x)
47.2
43.8
40.2
P/BV (x)
48.0
50.4
63.9
EV/EBITDA (x)
34.4
30.9
28.1
Div. Yield (%)
1.8
2.0
2.5
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Sep-15 Jun-15 Sep-14
67.2
13.9
4.8
14.1
67.2
14.6
4.2
14.0
67.2
15.1
3.9
13.8
FII Includes depository receipts
Stock Performance (1-year)
We interacted with the management of Hindustan Unilever—Mr Sanjiv
Mehta (CEO &MD) and Mr. P.B.Balaji (CFO)—on the sidelines of IND-AS
session, hosted by HUVR. Following are the key takeaways:
Flexing the pricing muscle?:
HUVR is using pricing power as a tool in the
prevailing deflationary environment. Selectively, it is making pricing changes
in several categories depending on its market positioning. For example,
overall, YTD, HUVR has hiked prices in ~50% of its portfolio and reduced
prices for the other half. As per the management, innovation will drive pricing
growth in the near term—given the largely benign commodity pricing
dynamics.
Flood disruption in Tamil Nadu + Delayed Winter may impact 3Q16:
Though
the management did not provide color on the near-term demand
environment, it indicated that disruption in Tamil Nadu due to floods could
impact performance as the state is an important market for HUVR. Also, we
believe delayed commencement of winter will have a bearing on
performance of its Personal Care portfolio. Nonetheless, the management
remains confident of long-term consumption opportunity and continues to
see premiumization in various product categories—e.g., Surf Excel is now the
largest brand for HUVR in Detergents (earlier Wheel, its mass market
offering, was the largest brand).
Rural growth = Urban growth:
For
HUVR, rural consumption trends have
incrementally softened—reflecting the lagged impact of lower rural wage
growth and weak MSP increases. With rural growth now being equal to urban
growth, HUVR is gradually driving increased assortment in rural markets to
drive mix improvement (category, brand, SKUs and channel).
Other takeaways:
a)
Internal philosophy for consistent profit growth:
Volume growth<sales growth<EBIT growth<cash profit growth. b)
Oral Care:
Pepsodent’s performance has not seen any material improvement even as
Close-Up continues to do well. c)
GST:
The impact of GST would depend on
Revenue Neutral Rate; however, it will certainly provide a level playing field—
with unorganized players coming under the tax ambit and reduction in
operational inefficiencies, which will aid in the ease of doing business.
HUVR—India AS Class 101:
The management had detailed discussion on the
new accounting standards to be implemented w.e.f. April 1, 2016. These are
still provisional and may undergo changes before being actually
implemented. Key changes in HUVR’s financial reporting as a consequence of
new standards are: a) Reclassification of excise duty from the current practice
of netting off from gross sales to inclusion in the cost of goods sold. b) Sales
Gautam Duggad
(Gautam.Duggad@MotilalOswal.com); +91 22 3982 5404
Manish Poddar
(manish.poddar@motilaloswal.com); +91 22 3027 8029/
Vishal Punmiya
(vishal.punmiya@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.