Buy Hindustan Unilever, target Rs 1615: HDFC Securities

HDFC Securities has a buy call on Hindustan Unilever Ltd. with a target price of Rs 1615.. The current market price of Hindustan Unilever Ltd. is Rs 1570.1 Time period given by analyst is Two Year when Hindustan Unilever Ltd. price can reach defined target.
Hindustan Unilever Ltd., incorporated in 1933, is a large cap company with a market cap of Rs 339668.68 Crore) operating in Personal Care sector.


Investment rationale by HDFC Securities
HUL’s revenue on a like-like basis grew by 16% to Rs 90.9bn (12% expectation). UVG was at 11% (4% in 4QFY17 and 11% in 3QFY18) vs. our expectation of 6.5%. There was a strong beat on EBITDA/APAT growth of 24/26% vs. our expectation of 16/13%.


HUL’s recovery post GST was faster than its peers (~1.5x growth). The company posted 16/24% revenue/EBITDA growth in 2HFY18. Our thesis has played out well on HUL. We anticipated that the leader will drive category growth during a challenging environment, thereby gain market share.

The growth drivers for HUL are (1) Drive penetration in Central India (growing at ~1.5x all India avg. growth), (2) Naturals segment (Lever Ayush and Indulekha) is growing ~2.5x HUL average, (3) Futuristic products like liquid wash, green tea etc. are growing ~2x of HUL average and (4) Premiumisation is playing out (only ~1/4th of portfolio is premium).

Our thesis remains intact and we believe earnings growth will sustain driven by recovery in rural demand, premiumisation, new product launches, strong pricing power (pass on inflation) and strong brand investments. We upgrade our multiple to 45x (43x earlier) P/E on Mar-20EPS to arrive at a TP of Rs 1,615. We re-iterate BUY.