Motilal Oswal's research report on Hindustan Unilever
The new sub categories, created over the last 10 years, now contribute ~20% to sales and are much more profitable than the base business. The company’s Premium portfolio contributed 33% toward sales in FY22, up from 22% in FY12. Yet, there still lies significant opportunity for growth. In the last 12 months alone, the Premium Beauty Business Unit has grown 2x the market rate. India’s per capita FMCG spend of USD46 is extremely low compared to other emerging markets such as Indonesia, China, Thailand, and the Philippines, all of which have a per capita FMCG spend ranging between USD100 and USD440. As highlighted in our FY22 Annual report note, the company is building an extremely strong technological backbone. Its B2B app, “Shikhar”, now covers over half of its direct reach outlets. The company’s digital demand capture is growing rapidly and stands at 25% of total demand. The management also indicated Winning in Many India (WiMI) based customization with different formulations of Brooke Bond tea, Lux Soap, and Surf Excel to cater to various parts of the country. With the uncertainty in rural recovery and no significant correction in commodity costs, barring palm oil and crude derivatives, earnings growth for the next few months is expected to remain muted. We maintain our Buy rating on the stock on account of superior moats over consumer staples peers. We believe the moats will help drive healthy mid-teens to late-teens earnings growth, similar to the levels in the five years before Covid.
Outlook
There is no material change in our forecasts. In view of near-term challenges for all staples, we bring down HUVR’s target multiples to 55x from 60x. We reiterate our Buy rating with a TP of INR2,900 (55x Sep’24E EPS).
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