Prabhudas Lilladher recommended hold rating on Hindustan Unilever with a target price of Rs 1880 in its research report dated December 03, 2018.
Prabhudas Lilladher's research report on Hindustan Unilever
We remain positive on HUVR's acquisition of Glaxo Consumer Healthcare given that it will be 1) EPS accretive by 5% in FY20 and ~7.75% in FY21 2) market leading brands like Horlicks and boost with more than 63.4% volume share in Rs77bn MFD industry 3) strong R&D and pipeline of nutritional products and 3) scalability to foods and refreshment business as combined sales exceed Rs100bn. HUVR expects significant scalability and synergy benefits from 1) 3x distribution and direct reach than GSK 2) distribution gains in pharma channel which is HUVR's weak point 3) cost reduction in advertising, supply chain and overheads and administration which will give margin accretion of 800-1000bps over time. We believe that synergy benefits will start accruing from FY21 and estimate an EPS uptick of 7.75% and 8.25% in FY21 and FY22.
We estimate pro-forma EPS of Rs40.9 for FY21 and value the stock at 46x thus arriving at target price of Rs1880 (1703 earlier). We expect one-time dividend in FY21 given that GSK has cash of Rs38bn in its books and HUVR has 80% dividend payout. Retain Hold.
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