Macquarie puts 'underperform' on HUL

RESEARCH: MACQUARIE

RATING: UNDERPERFORM

CMP: Rs 252.50

Macquarie has initiated coverage on Hindustan Unilever with `Underperform’ rating. In view of the intensified competition, the company can avoid losing market share only at the cost of margin erosion due to aggressive price cuts and increase in promotional expenses. Since ‘05, HUL has lost 15% market share in certain categories due to lack of product differentiation in its core categories.

Soaps and detergents that represent 45% of HUL’s sales are unlikely to provide strong growth due to already high penetration. Macquarie believes competition will force HUL to pull back its investments and management’s focus away from future growth categories. This could hamper HUL’s new product launches and innovations that may have helped drive stronger growth.