637583360248109392_HUL Initiating coverage (1).pdf

- 1 - Thursday, 03rd June, 2021

This document is for private circulation, and must be read in conjunction with the disclaimer on the last page.

Target: INR 3,185 CMP: INR 2,362 (53.2x FY24 P/E) BUY

Index Details Hindustan Unilever Ltd (HUL) is India’s largest FMCG player having ~44 brands spanning 14 distinct categories largely grouped into home care, beauty & personal care, food & refreshments & others. The recent merger of GSK is significantly accretive for HUL as GSK is one of the key players in the foods and refreshment (F&R) category with a wide product portfolio (includes iconic brands such as ‘Horlicks’ and ‘Boost’). The acquired portfolio is complementary to the current offerings of HUL in the F&R category. Combined with HUL’s vast distribution, we believe that HUL can significantly grow its F&R portfolio both in the short as well as in the long run. We initiate coverage on HUL with a BUY for a price target of Rs 3,185 representing a potential upside of 34.8% over the next 24 months (We have used the DCF method to value HUL). Our optimism stems from the following: We expect revenues to grow at a CAGR of 7.8% over FY21-24E to Rs 58,924 crores.

4.7% CAGR in home care revenues to Rs 16,000 cr. 4.3% CAGR in beauty and personal care revenues to Rs 20,484 cr. 15.1% growth in food & refreshment revenues to Rs 20,122 cr. 8.2% growth in other revenues to Rs 2,319 cr.

FMCG companies typically do well in an inflationary environment. This combined with a better product mix, increasing e-commerce penetration and higher utilisation should lead to an increase in EBITDA margins by ~100bps to 25.7% by FY24E. This should lead to a faster pace of growth of 9.3% CAGR in EBITDA to Rs 15,161.4 cr and PAT to Rs 10,425.8 crores respectively over the same period.

Sensex 52,232

Nifty 15,690

Industry FMCG

Scrip Details

Mkt Cap (Rs Cr) 5,55,070

O/S Share (Cr) 235

3 M Avg Vol (000) 2,329

52 Wk H/L (Rs) 2504/1955

Div Yield (%) 1.3

FVPS (Rs) 1.0

Shareholding Pattern

Shareholder %

Promoters 61.90

Institutional 25.63

Public 12.47

Total 100.00

HUL vs. Sensex

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Key Financials (in ₹ crores)

Sales EBITDA Net Profit EBITDA

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RoE (%)

RoCE (%)

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P/BV (x)

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FY20 39,783.0 9,861.0 6,756.0 24.8 17.0 31.3 38.1 82.1 107.7 75.5 62.0 55.8 FY21E 47,028.0 11,626.0 7,995.0 24.7 17.0 34.0 202.9 16.8 22.1 69.4 11.6 47.3 FY22E 50,009.0 12,503.2 8,685.1 25.0 17.4 37.0 204.2 18.1 23.7 63.9 11.6 44.0 FY23E 54,308.4 13,763.8 9,488.5 25.3 17.5 40.4 205.7 19.6 25.7 58.5 11.5 40.0 FY24E 58,924.4 15,161.4 10,425.8 25.7 17.7 44.4 207.3 21.4 28.0 53.2 11.4 36.3

- 2 - Thursday, 03rdJune, 2021


HUL portfolio boosts a variety of brands

Food & Refreshment Beauty & Personal care Home Care Boost Axe Citra Indulekha Cif

Cornetto Dove Clear Ayush Comfort Hellmann's Lifebuoy Close Up Liril Wheel

Horlicks Love,Beauty and Planet Fair & Lovely Glow & Handsome Nature Protect Knorr Lux Lakme Rexona Rin Lipton Pepsodent Pears V Wash Surf Excel

Magnum Pond's TIGI Vim Bru Rexona Toni&Guy Love & Care

Annapurna Sunsilk BRYLCREEM Sunlight Brooke Bond Tresemme Clinic Plus Domex

Taj Mahal Vaseline Elle 18 Kissan Aviance Pure Derm

Kwality Wall's Breeze Hamam Source :Company,Ventura Research

HUL is expected to keep up its roaring past performance on the back of the following:

Focus on the key growth channels of Modern Trade, e-Commerce and Health & Beauty.

Unlike other FMCG companies which have been focussing more on adding SKUs, HUL’s strategy of focussing more on innovation and bringing a distinctive proposition & superiority to its product has worked very well.

HUL boasts of a portfolio of products with individual sales of many brands in the range of Rs 500-5,000 crores

Many individual brands have sales in the range of Rs 500-5,000 crore

Source :Company, Ventura Research



Learning from COVID, HUL has debottlenecked its production line, making it more flexible to quickly adapt to the changing requirements, should there be a demand first and it has also added new manufacturing partners taking its potential capacity to 1.3x of pre-COVID levels.

Strong cash flow generation on the cards HUL is expected to continue to sustain strong cash flow generation. OCF to EBITDA is expected to be at 82.6% in FY24. FCFE and FCFF is expected to grow at 24.3% and 35.2% CAGR respectively to Rs 22,548.8 cr and Rs 11,256.9 cr in FY24. Dividend payout ratio to remain atleast at 75% Strong return ratios, leadership position, immense size of opportunity and innovation justifies the premium valuations given to the stock Based on the DCF valuation methodology we value HUL at Rs 3,185 representing a potential upside of 34.8% on the CMP of Rs 2,362 over the next 24 months.

DCF Valuation

Source: Company,Ventura Research



Sensitivity analysis

Source: Company,Ventura Research

Key risk and concern areas

Beauty and Personal care products demand can be affected if WFH becomes more permanent : As per a recent research report, usage of personal care products dropped in UK as people had lesser occasions to use them due to WFH. While we believe that gradually people will return to offices in India but major permanent shift towards WFH can derail the growth prospects for beauty products for HUL.

High valuations : FMCG companies enjoy higher multiples in India than other sectors due to huge growth story for them coupled with a premiumisation opportunity. Better return ratios, corporate governance, delevered balance sheet alongwith market leadership means HUL will always be the leader in the pack and hence enjoy the best multiples within the FMCG sector. However, if there is any structural shift in consumption/savings pattern owing to COVID, it can lead to derating of multiples for the whole FMCG industry.

Source: Company,Ventura Research, Bloomberg

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P/E band chart

Adj Price 49.56x 52.56x 55.56x 58.56x 61.56x



Peer Comparison

Source: Bloomberg, Ventura Research



Source: Company Reports & Ventura Research

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Revenues are expected to grow at 7.8% CAGR over FY21-24E

Home care-LHS Beauty & Personal care-LHS Food & refreshments-LHS Others-LHS Growth-RHS

Rs in cr

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Food and refreshments contibution to overall revenue to increase post Horlicks acquisition

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RoE and RoCE expected to fall post merger with GSK

RoE RoCE

HUL story in charts



Quarterly Financial Performance




Financials & Projections




Disclosures and Disclaimer

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637583360248109392_HUL Initiating coverage (1).pdf

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