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India Equity Research Reports, IPO and Stock News
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Presenting at the IF, Mr. R Sridhar (CFO, HUL) and Mr. Srinivas Phatak (GM – IR,
HUL) highlighted the strong long term consumption opportunity in India, thanks to
rising income, growing aspirations and low penetration levels. HUL with its diverse
portfolio and strong brands is well positioned to ride on this opportunity and has
been creating drivers of future growth (new products, better distribution). There
however remain concerns on high input cost inflation as well as competitive
pressures in the near-term. Valuations at 29x one year forward PE in this context
and we maintain our U-PF rating on the stock.
Upbeat outlook for the Indian FMCG industry…
Indian FMCG sector offers strong opportunity as evident from low penetration levels as
per as per capita consumption. For example, per capita consumption in segments like
skin care, shampoo, ice cream is 50-85% less than China, Indonesia. The FMCG
industry therefore should see a 12-17% growth rates over the next five years.
Interestingly, based on the ‘Living Standard Measures’ matrix, FMCG spends goes up
by 8x as the income levels rise from low level to high level which should particularly
benefit segments like personal care and packaged foods reflecting growing aspirations.
… even while near-term concerns persists
HUL is well positioned to ride on the long growth story, thanks to: a) broad based
portfolio; b) strong distribution; c) global leverage (R&D, brands); d) diverse talent
pool. There however remain concerns in the near-term particularly on input cost
inflation, competitive pressures. While there has been correction in key input prices
(palm oil) on a sequential basis, costs continue to stay high on a YoY basis. The recent
prices hikes effected are still lower than cost inflation. Additionally, the management
believes that there has not been any significant improvement in competitive
environment, which implies that margins pressures are likely to continue, in our view.
Number of product initiatives to drive growth…
HUL has stepped up the pace of innovations in the last few quarters in segments like
personal care, foods etc. For example, HUL has expanded its brand Vaseline which just
had petroleum jelly till a few years back into beauty/ skin care which also encompass
men’s product range as well. Similarly, there is strong focus on engaging with
consumers through formats like Lakme Beauty Salons, Bru Café. HUL has been also
been focussing on increasing its distribution network. For example, in the last 18-24
months, HUL has raised its distribution reach in rural India by 3x. HUL is also building
capability in modern trade which is also reflected in the growing market shares.
Current valuations are rich, maintain U-PF
We find current valuations at 29x one year forward earnings rich in the context of
continued cost pressures as well as competitive activity. The stock builds in optimism
on margin recovery largely driven by lower A&P and RM costs, which is overdone in our
view and we retain our UPF rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Presenting at the IF, Mr. R Sridhar (CFO, HUL) and Mr. Srinivas Phatak (GM – IR,
HUL) highlighted the strong long term consumption opportunity in India, thanks to
rising income, growing aspirations and low penetration levels. HUL with its diverse
portfolio and strong brands is well positioned to ride on this opportunity and has
been creating drivers of future growth (new products, better distribution). There
however remain concerns on high input cost inflation as well as competitive
pressures in the near-term. Valuations at 29x one year forward PE in this context
and we maintain our U-PF rating on the stock.
Upbeat outlook for the Indian FMCG industry…
Indian FMCG sector offers strong opportunity as evident from low penetration levels as
per as per capita consumption. For example, per capita consumption in segments like
skin care, shampoo, ice cream is 50-85% less than China, Indonesia. The FMCG
industry therefore should see a 12-17% growth rates over the next five years.
Interestingly, based on the ‘Living Standard Measures’ matrix, FMCG spends goes up
by 8x as the income levels rise from low level to high level which should particularly
benefit segments like personal care and packaged foods reflecting growing aspirations.
… even while near-term concerns persists
HUL is well positioned to ride on the long growth story, thanks to: a) broad based
portfolio; b) strong distribution; c) global leverage (R&D, brands); d) diverse talent
pool. There however remain concerns in the near-term particularly on input cost
inflation, competitive pressures. While there has been correction in key input prices
(palm oil) on a sequential basis, costs continue to stay high on a YoY basis. The recent
prices hikes effected are still lower than cost inflation. Additionally, the management
believes that there has not been any significant improvement in competitive
environment, which implies that margins pressures are likely to continue, in our view.
Number of product initiatives to drive growth…
HUL has stepped up the pace of innovations in the last few quarters in segments like
personal care, foods etc. For example, HUL has expanded its brand Vaseline which just
had petroleum jelly till a few years back into beauty/ skin care which also encompass
men’s product range as well. Similarly, there is strong focus on engaging with
consumers through formats like Lakme Beauty Salons, Bru Café. HUL has been also
been focussing on increasing its distribution network. For example, in the last 18-24
months, HUL has raised its distribution reach in rural India by 3x. HUL is also building
capability in modern trade which is also reflected in the growing market shares.
Current valuations are rich, maintain U-PF
We find current valuations at 29x one year forward earnings rich in the context of
continued cost pressures as well as competitive activity. The stock builds in optimism
on margin recovery largely driven by lower A&P and RM costs, which is overdone in our
view and we retain our UPF rating.
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