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Assuming coverage with UNDERPERFORM at a target price of
Rs301 (DCF). While volume growth should sustain in the near term,
profit growth will remain challenging. Since the rerating is not
backed with EPS upgrades (YTD consensus EPS estimate down
5%), we do not expect it to sustain, especially given the current
steep valuation.
● Given the lack of an identifiable factor driving volumes, street is
concerned on its sustenance. We, however, believe that with thr
management focus on volumes and a fairly buoyant demand
environment, it would be reasonable to expect volume growth to
sustain (at over 10%) in the near term.
● While input prices have moderated, margins in soaps and
detergents should recover; the gains in that segment could be lost
in personal products, given the stiff competition. With less room to
cut A&P expenses (could impact volumes), levers to counter
commodity and competitive pressures are limited.
● HUL’s stock is trading at the past ten- year peak valuations and
pricing in an unrealistic medium-term earnings scenario.
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