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Edelweiss Securities
Hind Unilever (Buy)
Target: ₹2,960
CMP: ₹2,326.50
Distributors of Hindustan Unilever in Maharashtra are likely to stop supplying its products in phases from January 1. These issues have happened earlier also, and we expect HUL and distributors to come to an agreement soon. In our view, these kind of differences and tussles would further drive consolidation in favour of organised players and online players.
Important to note that HUL now services 15 per cent of its demand digitally, which is a significant advantage (but wasn’t so a few years ago). HUL dominates most categories and has a strong consumer-pull. Overall, we do not expect significant impact on HUL as shops and consumers can easily buy from online and organised players. In our view, HUL’s EBITDA margins are likely expand both q-o-q and y-oy in Q3-FY22. It is more important to monitor issues such as price hikes, rural slowdown, winter and Covid-related restrictions than this issue in Maharashtra. Organised distributors like JioMart, Metro Cash & Carry, Udaan, etc have a huge runway and ability to keep gaining share. We remain positive on HUL’s ability to outgrow the market underpinned by distribution and digital expansion, and product innovation initiatives. Key risk is if this .fight goes on for a long time, which we think has a low probability.
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