Hindustan Unilever (HUL), in a bid to cement its position in the water purifier business, has launched Pureit sachets. Recently, HUL also initiated several other innovations in products and packaging. We perceive the new positioning of Axe as the mother brand for all its male grooming products as a master stroke, as this segment is on a sharp uptrend. We expect HUL (largest soap player) to benefit from the correction in palm oil prices in coming quarters (however, rupee depreciation will limit gains) and softness in stance of major competitor, P&G. The key risk is delayed monsoon, which may impact rural demand. Vindicating our report, Go Contra; turnaround signals getting louder, dated May 26, 2010, the stock has since outperformed Nifty ~94% and crossed the INR1-tn market cap mark. Reiterate ‘BUY’.
One step ahead of competitors in water purifier segment
With the bottled water market in India growing at 19%, HUL is well placed participate in demand for water purifiers. Bringing in fresh momentum to the INR35bn purifier market, HUL has launched low-cost chlorine-based Pureit sachets (being test marketed in Bhopal). The product is to be dipped in water and left for a while before use to achieve purity comparable to boiled water. This mass market offering will take Puriet across price points and categories and potentially be a game changer as sachets work well in the bottom of pyramid segment (~70% shampoo sales through sachets).
Upping ante on innovation, cost rationalisation
HUL recently launched Magic, an after-wash laundry brand, which reduces water usage by two-thirds (being test marketed in Andhra Pradesh). Its innovative packaging for Pond’s Talcum Powder also led to cost and waste reduction (won Silver Award at the 24th DuPont Global Packaging Award).
Outlook and valuations: Positive; maintain ‘BUY’
At CMP, the stock is trading at 32.0x and 27.2x FY13E and FY14E, respectively. We reiterate ‘BUY’ on the stock and rate it ‘Sector Outperformer’ on relative return basis.