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Samco Securities
Hindustan Unilever (Accumulate)
CMP: ₹2,009
Target: ₹2,300
Key takeaways: a) HUL boasts of a wide network which has become its biggest asset in a weak consumpon scenario. Leverages its parent Unilever’s strong linkages to market products.
b) Largest FMCG player with high brand recall value and top five brands contributing to an annual turnover of over ₹2,000 crore each.
c) On the right path of consolidation of distribution centres, Internet of Things (IoT)-powered digital factories, automated warehouse robotics and a mix of own factories and third party manufacturers helps foster efficiency and accuracy.
d) Healthy free cash flows, consistent operating margins of around 20 per cent enable HUL to meet its capex and debt obligaons through internal accruals. Decent sales growth even during down cycles.
Risks: a) Post merger, GSK Consumer plans to sell its 5.7 per cent stake in HUL in order to pay off its global obligations.
b) Biggest advertisers in India in terms of ad spends compared to peers. Currently, its ad spend to sales is around 12 per cent. Any substantial increase could be a red flag.
c) Price war in popular segments with new entrants and spike in ad spends due to acute competition from both organised and unorganised players to remain a challenge.
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