Hold Hindustan Unilever, target price Rs 2,165: JM Financial

JM Financial has given a hold rating to Hindustan Unilever with a target price of Rs 2,165 at an upside of 15.8 per cent from the current market price.

HUL’s acquisition of ‘VWash’ – a market leading brand in the female intimate hygiene category from Glenmark Pharma is a sign that the company is still functioning as normal as the present circumstances (social distancing, closures of offices and other business premises, lockdown of cities and towns, etc) would allow.

The transaction is small in size and will not materially alter the revenue or profitability profile of HUL. Neither consideration nor present business size has been made public.


The company’s share price moved up by 8.29 per cent from its previous close of Rs 1869.70 on Monday. The last traded price is Rs 2025. Incorporated in 1933, HUL is a FMCG major with a market cap of Rs 405373.57 crore.

Investment Rationale

HUL sees VWash as an opportunity for it to tap a very high-growth whitespace and a big market-development opportunity that seems to promise double-digit growth for many years to come. Glenmark and its network of third party vendors would continue to manufacture the products for HUL for some time after which, HUL will decide on continuing the arrangement or putting up its own manufacturing facilities.

The segment has healthy growth potential, good gross margin - HUL can unlock significant synergies for the brand that looks to be a double-digit growth opportunity for many years to come.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 9978.00 crore, up .21 per cent from last quarter sales of Rs 9,957 crore and up 3.81 per cent from last year same quarter sales of Rs 9612.00 crore. The company reported net profit after tax of Rs 1,631 crore in the latest quarter.