We had listed 13 causes for re-rating of Hindustan Unilever (HUL) in our detailed report 5 months in the past. The inventory rallied 24% since (outperforming the FMCG index by 800 bps) to an all-time excessive. With softening uncooked materials costs, recovering mobility spurring OOH & discretionary merchandise and a powerful vaccination drive, we stay optimistic on the inventory.
We enlist 12 causes that point out extra steam is left within the ongoing rally. Within the close to time period, an bettering portfolio combine mixed with deflation in tea prices, aside from HUL’s price management, worth hikes and synergies from the GSK takeover ought to abate considerations on uncooked materials inflation. Retain ‘purchase’ with the very best goal worth (TP) on Avenue of Rs 3,010.
We stay optimistic on HUL’s means to outgrow the market, in addition to, its pricing energy, underpinned by distribution growth, deepening direct attain and product innovation initiatives. The continuing demand shift from smaller gamers to HUL would proceed, particularly in tea and soaps. The merger of the GSK portfolio with HUL has begun to yield a income delta; we imagine the bigger story will probably be innovation and new merchandise in HFD and allied classes.
We count on the FMCG main to be a key beneficiary of sturdy rural demand. The order state of affairs is dynamic as a consequence of uncertainty across the pandemic; nevertheless, the corporate is nicely positioned by way of provide chain preparedness. The inventory is buying and selling at 57.1x FY23E EPS.
A few of the explanation why we count on extra upside are gross margin prone to have bottomed out as tea, packaging and palm oil costs have began correcting. The sturdy restoration in laggard classes akin to material wash, discretionary, OOH merchandise and detergents, beneficial properties in market share prone to maintain and the agricultural development to revive. Scaling-up in meals aided by GSK ‘sachetisation’ and innovation and premiumisation prone to increase gross sales for HUL.
The expansion potential in HUL’s segments stays enticing for many years to return. FY22 will mark a wholesome and robust stability of worth and quantity development. Increased mobility, consumer-relevant improvements and investments in market growth will even drive restoration in HUL’s volumes.