We had listed 13 motives for re-rating of Hindustan Unilever (HUL) in our detailed report 5 months ago. The stock rallied 24% because (outperforming the FMCG index by 800 bps) to an all-time higher. With softening raw material costs, recovering mobility spurring OOH & discretionary solutions and a powerful vaccination drive, we stay positive on the stock.
We enlist 12 motives that indicate more steam is left in the ongoing rally. In the close to term, an enhancing portfolio mix combined with deflation in tea fees, apart from HUL’s expense manage, price tag hikes and synergies from the GSK takeover ought to abate issues on raw material inflation. Retain ‘buy’ with the highest target price tag (TP) on Street of Rs 3,010.
We stay positive on HUL’s potential to outgrow the industry, as properly as, its pricing energy, underpinned by distribution expansion, deepening direct attain and solution innovation initiatives. The ongoing demand shift from smaller sized players to HUL would continue, in particular in tea and soaps. The merger of the GSK portfolio with HUL has begun to yield a income delta we think the bigger story will be innovation and new solutions in HFD and allied categories.
We anticipate the FMCG important to be a important beneficiary of powerful rural demand. The order predicament is dynamic due to uncertainty about the pandemic nonetheless, the organization is properly placed in terms of provide chain preparedness. The stock is trading at 57.1x FY23E EPS.
Some of the motives why we anticipate more upside are gross margin probably to have bottomed out as tea, packaging and palm oil costs have began correcting. The powerful recovery in laggard categories such as fabric wash, discretionary, OOH solutions and detergents, gains in industry share probably to sustain and the rural development to revive. Scaling-up in meals aided by GSK ‘sachetisation’ and innovation and premiumisation probably to increase sales for HUL.
The development possible in HUL’s segments remains appealing for decades to come. FY22 will mark a healthier and powerful balance of price tag and volume development. Higher mobility, customer-relevant innovations and investments in industry development will also drive recovery in HUL’s volumes.