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UBS Investment Research
First Read: Hindustan Unilever
Unilever rejig; India in the spotlight
„ Event: Mr Harish Manwani becomes Unilever COO
Unilever has made changes to its category and go-to-market structure to support its
growth plans in emerging markets. Mr Harish Manwani, currently President, Asia
Africa, Central & East Europe will take over as COO from 1
st
Sept’11.
„ Impact: India in the spot light
This is the first time that an Indian has been raised to being COO of Unilever Plc;
earlier we had HUL chairpersons T Thomas, Ashok Ganguly, KB Dadiseth and
Vindi Banga who have been members of the Unilever Executive Committee. We
believe this move brings focus to India; which has emerged as the battleground for
global MNCs, a reflection of the sustainably strong volume growth expected in the
consumer sector.
„ Action: Focus on volume growth; not profits
Management focus of acquiring market share could be detrimental to minority
shareholder interest in the near term. HUL operates in highly penetrated product
categories and so it has little pricing power. In the absence of pricing power and an
increase in COGS and advertising costs, we believe PAT growth would be capped
at ~5-6% YoY in FY12E.
„ Valuation: Maintain Sell Rating
We derive our price target from a DCF based methodology and explicitly forecast
long term valuation drivers using UBS’s VCAM tool. We assume WACC of
10.84%, a terminal growth rate of 2%, and beta of 0.55. Our price target is
equivalent to 23.2x our 2012E EPS estimate.
Q Hindustan Unilever
Hindustan Lever is the leading household goods and food products company in
the country. It has a dominant share in each of its key businesses: personal care,
laundry, tea and branded staple foods. An unmatched distribution reach covering
directly over a million retailers and a wide product portfolio with pricecompetitive products underpin its market leadership. Management is focusing on
rationalising its brand portfolio to drive a sales growth rebound and has
identified 30 core brands to which it will commit maximum resources for
growth.
Q Statement of Risk
We think the key risks that could affect the sector include continued upward
movement of downstream petrochemical products and higher agri-commodity
based raw material costs, and the inability of branded consumer companies to
pass on price increases in an increasingly competitive market. The sector has
low corporate tax rates because factories are located in areas that are designated
as tax benefit zones; any change in this law could affect earnings, in our view.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: Hindustan Unilever
Unilever rejig; India in the spotlight
„ Event: Mr Harish Manwani becomes Unilever COO
Unilever has made changes to its category and go-to-market structure to support its
growth plans in emerging markets. Mr Harish Manwani, currently President, Asia
Africa, Central & East Europe will take over as COO from 1
st
Sept’11.
„ Impact: India in the spot light
This is the first time that an Indian has been raised to being COO of Unilever Plc;
earlier we had HUL chairpersons T Thomas, Ashok Ganguly, KB Dadiseth and
Vindi Banga who have been members of the Unilever Executive Committee. We
believe this move brings focus to India; which has emerged as the battleground for
global MNCs, a reflection of the sustainably strong volume growth expected in the
consumer sector.
„ Action: Focus on volume growth; not profits
Management focus of acquiring market share could be detrimental to minority
shareholder interest in the near term. HUL operates in highly penetrated product
categories and so it has little pricing power. In the absence of pricing power and an
increase in COGS and advertising costs, we believe PAT growth would be capped
at ~5-6% YoY in FY12E.
„ Valuation: Maintain Sell Rating
We derive our price target from a DCF based methodology and explicitly forecast
long term valuation drivers using UBS’s VCAM tool. We assume WACC of
10.84%, a terminal growth rate of 2%, and beta of 0.55. Our price target is
equivalent to 23.2x our 2012E EPS estimate.
Q Hindustan Unilever
Hindustan Lever is the leading household goods and food products company in
the country. It has a dominant share in each of its key businesses: personal care,
laundry, tea and branded staple foods. An unmatched distribution reach covering
directly over a million retailers and a wide product portfolio with pricecompetitive products underpin its market leadership. Management is focusing on
rationalising its brand portfolio to drive a sales growth rebound and has
identified 30 core brands to which it will commit maximum resources for
growth.
Q Statement of Risk
We think the key risks that could affect the sector include continued upward
movement of downstream petrochemical products and higher agri-commodity
based raw material costs, and the inability of branded consumer companies to
pass on price increases in an increasingly competitive market. The sector has
low corporate tax rates because factories are located in areas that are designated
as tax benefit zones; any change in this law could affect earnings, in our view.
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