Scrip
Code: 500696 / HINDUNILVR
CMP:
Rs. 571.60; Buy at every dips.
Medium to Long term Target: Rs. 633; STOP LOSS – Rs. 525.90; Market
Cap: Rs. 1,23,612.44 Cr; 52 Week High/Low: Rs. 725.00 / Rs. 432.15
Total
Shares: 216,25,69,017 shares; Promoters : 145,44,12,858 shares –67.25 %; Total
Public holding : 70,81,56,159 shares – 32.74 %; Book Value: Rs. 12.37; Face Value: Rs. 1.00; EPS: Rs. 16.61;
Div: 1850.00 % ; P/E: 34.43 times; Ind. P/E: 38.24; EV/EBITDA: 25.69.
Total
Debt: ZERO
Cr; Enterprise Value: Rs. 1,23,287.81 Cr.
HINDUSTAN
UNILEVER LTD: The Company was founded in 1931 and is based in
Mumbai, India. The company was formerly known as Hindustan Lever Limited and
changed its name to Hindustan Unilever Limited in 2007. Unilever Ltd on November 17, 1956, offered
5,57,000 shares of Rs. 10 each to the public at par. In February 1980, in order
to reduce the Non- Resident holding in the company to 51 %, Unilever Ltd
offered for sale of 42,39,523 equity shares of Rs. 10 each at a premium of Rs.
9.50 per share, this was out of its shareholding in the company. Hindustan
Unilever Limited, is a Fast Moving Consumer Goods (FMCG) company – it provides
home and personal care products; foods and beverages in India and
internationally. The company operates in 7 business segments. The company
offers soaps and detergents, including soaps, detergent bars, detergent
powders, detergent liquids, and scourers; and personal products - such as oral
care, skin care, hair care, deodorant, talcum powder, and color cosmetic
products, as well as Ayush services. It also provides beverages - including tea
and coffee; foods, such as atta (flour), salt, and bread; culinary products
comprising tomato and fruit based products, and soups; and ice creams, such as
ice creams and frozen desserts. In addition, the company offers chemicals, such
as glycerin and fine chemicals; agri commodities; and water purifiers, as well
as exports marine and leather products. HUL has over 35 brands spanning 20
distinct categories. Its portfolio of brands includes the brand names like - 3 Roses, Annapurna, Brooke Bond, Taaza,
Bru, Kissan, Knorr, Kwality Wall’s, Lipton, Modern, Red Label, and Taj Mahal
brand names; personal products under the Aviance, Axe, Breeze, Clear, Clinic
Plus, Closeup, Dove, Fair & Lovely, Hamam, LEVER Ayush Therapy, Lakme,
Lifebuoy, Liril 2000, Lux, Pears, Pepsodent, Pond's, Rexona Soap, Sunsilk, and
Vaseline brand names; and home care products under the Active Wheel, Cif,
Comfort, Domex, Rin, Sunlight, Surf Excel, and Vim brand names and water
purifiers under the brand name Pureit. As on 31st March 2013,
Company had over 35 brands spanning 20 distinct categories. From April 01,
2013, Aquagel Chemicals Pvt Ltd become a subsidiary of Hindustan Unilever Ltd.
On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48
% to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via
open offer priced at Rs. 600 per share. The
company is locally compared with ITC, Godrej Consumer, Dabur India, Colgate,
Marico, Emami, Godrej Ind, P&G, Gillette India, Bajaj Corp, Jyothy Labs,
Amar Remedies, JHS Svendgaard, GKB Ophthalmics and Globally compared with Associated
British Foods Plc of London, Colgate-Palmolive Co of New York, Kimberly-Clark
Corp of USA, Procter & Gamble Co of USA, Nestle S.A of Europe, Pepsico Inc
of USA, Coca- Cola Co of USA, Mondelez International Inc of USA (earlier known
as Kraft Foods Inc which acquired Cadbury’s), Heineken Nv of Amsterdam,
Starbucks Corp of USA, McDonald’s Corp of USA, Yum! Brands Inc of USA, Danone
of Paris, Asahi Group Hld Ltd of Japan, and Kerry Group of Dublin.
Investment Rationale:
HINDUSTAN UNILEVER LTD is a play on consumption growth in India. The
company has displayed its ability to effect price hikes and avoid impact of
inflation in vegetable oils, which, combined with improved outlook for fabric
wash and strong growth in processed foods and beverages, boosts the positive
outlook on the stock. The recent moves by the company to dispose of its
non-core assets including few properties give it a near term upside. The FMCG market in India is estimated to grow to US$ 100 billion by
2025, according to market research firm Nielsen. In the last decade the
FMCG sector has grown at an average of 11 % a year; in the last five years,
annual growth accelerated to 17 %. The FMCG Industry is characterized by a
well-established distribution network, low penetration levels, low operating
cost, lower per capita consumption and intense competition between the
organized and unorganized segments. The rural India accounts for 70 % of
India’s population, 56 % of National Income, 64 % of total expenditure and one
third of the total savings. The Indian FMCG sector is the fourth largest
sector in the Indian economy. Indian rural markets contribute around 45 % in HUL
sales. In-order to tap the rural markets, HUL has conceived a project
named Project Shakti. This project was started in 2001 with the aim of
increasing the company's rural distribution reach as well as providing rural
women with income-generating opportunities. This is a case where the social
goals are helping achieve business goals. The recruitment of a Shakti
Entrepreneur or Shakti Amma (SA) begins with the executives of Hindustan Unilever Ltd identifying
the uncovered village areas. The representative of the company meets the panchayat
and the village head and identify the woman who they believe will be suitable
as a SA. After training she is asked to put up Rs. 20,000 as investment which is
used to buy products for selling. The products are then sold door-to-door or through
petty shops at home. On an average a Shakti Amma makes a 10 % margin on the
products she sells. The main advantage of the Shakti program for HUL is having
more feet on the ground. Shakti Ammas are able to reach far flung areas, which
were economically unviable for the company to tap on its own, besides being a
brand ambassador for the company. Moreover, the company has ready consumers in
the form of SAs who become users of the products besides selling them. This gives
thrust to the company’s volumes. On July 04, 2013, the parent
company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by
acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer
priced at Rs. 600 per share amounting to Rs. 19,174 Crs. The total shares
tendered by HUL shareholders were 31,99,91,578 shares out of which 31,95,63,398
shares were accepted by Unilever Plc. The tender offer was announced on April
30, 2013 and began on June 21, 2013 and ended on July 4, 2013. Unilever wanted
to raise its stake to 75 % from 52.48 %, but managed to hike its stake to 67.26
%. The stake rise by the parent company shows confidence in the India
consumption growth story and parent believes that India is one of the biggest
markets for Unilever and it would be beneficial to acquire a larger share in
its Indian Arm. HUL also launched few products in the beauty portfolio with
offerings like Lakme Youth Infinity range, Lakme Cleanup Clear Pores range,
Ponds Pimple Clear facewash and Dove facewash with Nutrium Moisture. HUL
continues to focus on innovations as it believes that it is these innovations
that will bring strong growth when the market scenario improves.
Outlook and Valuation:
Business environment for HUL continues to be challenging with slowing growth
being witnessed on both the value and volume fronts. The overall competitive intensity
has stepped up in various categories while the up-trending has come to an
pause. The discretionary category which was outpacing the other category over a
longer term has come to a pause, but the company believes it to be a short-term
phenomenon. HUL, in its board meet in
January 2013, approved a royalty of 3.15 per cent of turnover effective from
February 2013. Till January 2013, the company paid 1.4 per cent of the total
turnover as royalty to its parent company, Unilever. The company will increase
the royalty from 1.4 per cent to 3.15 per cent in a phased manner till March
2018. On performance side, HUL’s 2QFY14 revenues grew by 9.2 % YoY to Rs. 6,890
Cr owing to higher than expected volume growth of 5 %. HUL saw a recovery in
Personal Product (PP) growth to 12 % YoY against 2 % of 1QFY14 which is the key
positive. Higher sales in PP were at the cost of lower margins which were down
by 1.41 % YoY. Waning price led growth and higher competitive intensity in Sales
& Distribution has not only impacted sales growth of the segment but also its
margins. HUL’s EBITDA margin remained flat at 15.7 % as EBITDA grew 11.1 % to
Rs. 1,080 Cr. Lower than expected tax rate led to Adjusted PAT growth of 9.6 %.
HUL has a robust product pipe, and has a strong and lucrative personal products
portfolio, and expanding distribution network. But with waning price growth in
Sales & Distribution, difficult demand environment in packaged foods and
personal products and with increased competitive intensity; it is expected that
company’s revenue growth will curtail. However, HUL is also a good play because it has a revenue growth from a medium to long term
perspective, however due to increase in royalty, steep hike in tax rate and
slowdown in discretionary segments remains an overhang on this stock. Depreciation
in rupee impacts price of imported raw materials. A rise in crude oil prices
can impact packaging costs and indirectly / directly impact palm oil and LAB
prices. Increase in palm oil prices may lead to gross margin contraction. The
price war in HUL’s popular segments with new entrants entering the fray could
hit the company hard. HUL pay’s rich dividends and one can hold this stock from
a three five year perspective and focus on new product launches and market
share gains in existing categories. At the current market price of Rs. 571.60, the stock P/E ratio is at 34.43 x FY14E and 30.73 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 16.60 and Rs. 18.60 respectively. Hindustan Unilever Ltd could be a good buy for the target price of Rs. 633 for Medium to Long term investment.
| KEY FINANCIALS | FY12 | FY13 | FY14E | FY15E |
|---|
| SALES (₹ Crs) | 22,987.70 | 26,317.20 | 28,726.20 | 32,417.20 |
| NET PROFIT (₹ Cr) | 2,686.50 | 3,385.10 | 35,90.30 | 4,034.80 |
| EPS (₹) | 12.40 | 15.60 | 16.60 | 18.60 |
| PE (x) | 47.60 | 37.80 | 35.60 | 31.70 |
| P/BV (x) | 36.50 | 47.20 | 33.20 | 25.20 |
| EV/EBITDA (x) | 35.30 | 29.40 | 26.40 | 23.00 |
| ROE (%) | 83.40 | 103.10 | 104.50 | 87.60 |
| ROCE (%) | 257.80 | 489.10 | 431.00 | 227.40 |
I would buy HINDUSTAN UNILEVER LTD for Medium to Long term for target of Rs. 633. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 525.90 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here
*As the author of this blog I disclose that I do hold HINDUSTAN UNILEVER LTD in my investment portfolio.
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