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Motilal Oswal
Hindustan Unilever (Buy)
CMP: ₹1,699.6
Target: ₹2,125
We spoke to the management of Hindustan Unilever (HUL) for an update on the overall market conditions. Key takeaways:
a) A small short-term blip was seen in 4QFY19 demand. But, we had already built in 8 per cent volume growth for 4QFY19 versus double-digit growth of the preceding five quarters.
b) 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 per cent volume growth.
c) We believe HUL will continue to outperform peers over the medium term.
d) Material cost outlook remains benign, ad spends & promotion intensity have not picked up erratically and cost savings continue at the targeted pace.
Valuation and view: There is no change to our forecasts. We expect its high multiples to sustain a) on combination of continued healthy volume growth versus peers; b) on better earnings growth versus 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 ₹2,125, target multiple of 52x FY2021 EPS (which is aout 15 per cent premium to three-year average due to significantly improving business fundamentals).
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