EUR 120.00 For Business Accounts Only

MOSL: HINDUSTAN UNILEVER (Buy)-Short-term blip in demand; Investment case remains strong

HINDUSTAN UNILEVER: Short-term blip in demand; Investment case remains strong

(HUVR IN, Mkt Cap USD53.2b, CMP INR1699, TP INR2125, 25% Upside, Buy)

 

We spoke to the management of Hindustan Unilever (HUL) for an update on the overall market conditions. Key takeaways:

• A small short-term blip was seen in 4QFY19 demand. But, we had already built in 8% volume growth for 4QFY19 v/s double-digit growth of the preceding five quarters.
• Measures announced in the budget are expected to benefit demand from 1QFY20 onwards. We see no immediate threat to our FY20 forecast of 7.5% volume growth.
• We believe HUVR will continue to outperform peers over the medium term.
• Material cost outlook remains benign, ad spends & promotion intensity have not picked up erratically and cost savings continue at the targeted pace.
• Valuation & View: There is no change to our forecasts. We expect its high multiples to sustain (a) on combination of continued healthy volume growth v/s peers, (b) on better earnings growth v/s its own past earnings, (c) because of the company's best-in-breed return ratios, and (d) due to synergies from the GSKCH acquisition from FY21 (we are not building in benefit from the acquisition yet in our numbers). We maintain BUY rating on the stock with a target price of INR2,125, target multiple of 52x FY2021 EPS (which is ~15% premium to 3-year average due to significantly improving business fundamentals).