Hindustan Unilever Ltd
(BSE Code: 500696) (CMP: Rs.1856.8) (FV: Re.1)
Founded in 1931, Mumbai-based Hindustan Unilever Ltd (HUL) is a consumer goods company that manufactures and sells home and personal care, food and refreshment products. It operates as a subsidiary of Unilever PLC. It operates through 5 segments: Home Care, Personal Care, Foods, Refreshment and Others. The ‘Home Care’ segment offers soaps, detergent bars, detergent powders, detergent liquids, scourers, water business, etc. The ‘Personal Care’ segment provides oral, skin and hair care products as well as deodorants, talcum powder, color cosmetics, salon services, etc. The ‘Foods’ segment provides staples including atta, salt, bread, etc.; and culinary products such as tomato-based products, fruit-based products, soups, etc. The ‘Refreshment’ segment offers tea, coffee, frozen desserts and ice creams. The ‘Others’ segment offers infant care products, exports leather products, etc.
HUL also engages in beauty salons, job work, discharge trust and real estate businesses. It provides its food and drink products under the Cornetto, Knorr, Lipton, Magnum, BRU, Annapurna, Brooke Bond 3 Roses, Brooke Bond Red Label, Brooke Bond Taaza, Brooke Bond Taj Mahal, Kissan and Kwality Wall's brands; and home care products under the Cif, Comfort, Active Wheel, Domex, Rin, Surf excel, Vim and Sunlight brands. It offers its personal care products under the Axe, Dove, Lifebuoy, Lux, Pepsodent, Pond's, Sunsilk, Sure, TRESemmé, Vaseline, aviance, Breeze, Clear, Closeup, Fair & Lovely, Lakmé, Pears, TIGI, TONI & GUY, Brylcreem, Clinic Plus, ELLE 18, Hamam, Ayush, Indulekha, Liril and Rexona brands; and water purifiers under the Pureit brand.
HUL’s big bet on health drinks with the Horlicks acquisition from Glaxo Smith Kline (GSK) appears positive and we estimate EPS accretion of ~6% from the deal. The management’s positive commentary on category growth and synergy benefit targets can drive more upsides. HUL believes this category of Health Foods offers strong long-term growth given
the low penetration and a huge opportunity for market development and premiumisation. It believes higher distribution reach and innovation capabilities can help leverage these brands significantly. The management’s robust targets from synergy benefits estimated at 800-1,000 bps makes the deal margin and EPS accretive. The management believes its higher distribution reach (4x of GSK) provides opportunity to increase penetration (currently at 24%) through low unit packs and unlock the potential in the North and West. The management believes it can target potential net synergy benefit of 800-1,000 bps of margins from scale efficiencies, network optimization and A&P efficiencies. The GSK overhead cost structure at 46% of sales is higher v/s peers and that of HUL at 32% of sales offers room for reduction.
We believe HUL has plenty of levers to drive higher growth led by its higher distribution reach and innovation and market development capabilities which are not priced in yet.
GSK Consumer will be merged with HUL in an all equity merger. The share swap ratio of 4.39 shares of HUL for 1 share each of GSK Consumer (valuing GSK at Rs.31700 crore). The deal is likely to be completed within a year. Under the deal, Brands owned by GSK India (Boost, Viva and Maltova) will be retained by the merged entity. Unilever will acquire the Horlicks brand in India and overseas markets (including group companies) currently owned by GSK Plc. HUL will distribute GSK’s OTC and oral health products under a consignment selling agreement for 5 years. Technical Outlook: The HUL share looks very good on the daily chart for medium-term investment. The stock has formed a strong uptrend on the daily chart. Any correction in the stock should be accumulated for a good upside. It trades above all important moving averages like the 200 DMA on the daily chart. Start accumulating at this level of Rs.1856.8 and on dips to Rs.1780 for medium-to-long term investment and a possible price target of Rs.2130+ in the next 6 months.