Property sale to aid FY15E earnings!!! Hindustan Unilever (HUL) :: ICICI Securities, report

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Property sale to aid FY15E earnings!!!
Hindustan Unilever (HUL) has entered into an agreement with HDFC Ltd
for the sale of its previous headquarters “Lever House” in Churchgate,
South Mumbai. According to media sources, the deal has been inked at
~| 300 crore. The property (~1.53 lakh square feet) had previously been
leased out to the buyer (HDFC) for a three year period from 2012. HUL
has had a slew of property sales in the past few years selling property
worth ~| 1000 crore since 2012. Considering that the current deal has
been done at ~| 300 crore, we believe the proceeds would add to the
company’s earnings per share by ~| 1 in FY15E, increasing it to | 20.3.
With no major changes in business revenues and earnings for FY16E and
FY17E, we maintain our future estimates and a HOLD rating on the stock.
Declining raw material to aid margins
With crude and other commodity prices witnessing a sharp decline, we
believe operating margins of HUL would improve in the near future.
Further, a steady revival in demand and product mix change (shift of
consumers to premiumisation and aspirational brands) would remain
catalysts for long term earnings growth. With HUL shifting its focus
towards higher growth and premium product categories that would drive
higher realisation, we expect raw material cost as a percentage of sales to
moderate to ~51% by FY16E and help push up margins to ~17% by
FY16E. We believe savings in raw material costs would be directed
towards higher marketing spends to fight competition and aid new
launches. We expect margins to increase to 17.3% by FY17E from 16% in
FY14 and 17% in FY15E, aiding earnings (adjusted) CAGR at 11.7% in
FY14-17E.
Strong brands augur well for demand revival
We expect near terms concerns over demand revival to remain an
overhang on the stock. However, with a revival in urban demand and
strong brands in growing aspirational segments, we believe HUL is
strongly placed to capture the booming consumer demand in the next
three to five years. We value the stock at 32x FY17E EPS of | 23.9 and
arrive at a target price of | 755/share.

LINK
http://content.icicidirect.com/mailimages/IDirect_HUL_CoUpdate_Jan15.pdf