Hin­dus­tan Unilever Ltd

Money Times - - Stock Watch -

(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.

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