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Showing posts with label HINDUSTAN UNILEVER LTD. Show all posts
Showing posts with label HINDUSTAN UNILEVER LTD. Show all posts

Saturday, May 23, 2015

HINDUSTAN UNILEVER LTD : SMALL ACTIONS, BIG DIFFERENCE !!!

Scrip Code: 500696 HINDUNILVR
CMP:  Rs. 863.75; Market Cap: Rs. 1,86,898.93 Cr; 52 Week High/Low: Rs. 981.00 / Rs. 553.35 
Total Shares: 216,38,08,180 shares; Promoters : 145,44,12,858 shares –67.23 %; Total Public holding : 70,93,95,322 shares – 32.78 %; Book Value: Rs. 15.15; Face Value: Rs. 1.00; EPS: Rs. 19.94; Div: 1300.00 % ; P/E: 43.31 times; Ind. P/E: 58.10; EV/EBITDA: 31.97.
Total Debt: ZERO Cr; Enterprise Value: Rs. 1,86,278.32 Cr.

HINDUSTAN UNILEVER LTD: The Company was founded in 1931 and is based in Mumbai, India. The company was formerly known as Hindustan Lever Limited and changed its name to Hindustan Unilever Limited in 2007. Unilever Ltd on November 17, 1956, offered 5,57,000 shares of Rs. 10 each to the public at par. In February 1980, in order to reduce the Non- Resident holding in the company to 51 %, Unilever Ltd offered for sale of 42,39,523 equity shares of Rs. 10 each at a premium of Rs. 9.50 per share, this was out of its shareholding in the company. Hindustan Unilever Ltd have given lucrative bonuses in the past. Company first gave bonus in the year 1979 in the ration of 1 new share for every 3 held; then in 1983 in the ratio of 3 new for 5 held; then in 1987 in the ratio of 1 new for 1 held and lastly in the year 1991 in the ratio of 1 new for every 2 held. The company had last split the face value of its shares from Rs. 10 to Re. 1 in the year 2000. Hindustan Unilever Limited, is a Fast Moving Consumer Goods (FMCG) company providing home and personal care products; foods and beverages in India and internationally. The company operates in 7 business segments. The company offers soaps and detergents, including soaps, detergent bars, detergent powders, detergent liquids, and scourers; and personal products - such as oral care, skin care, hair care, deodorant, talcum powder, and color cosmetic products, as well as Ayush services. It also provides beverages - including tea and coffee; foods, such as atta (flour), salt, and bread; culinary products comprising tomato and fruit based products, and soups; and ice creams, such as ice creams and frozen desserts. In addition, the company offers chemicals, such as glycerin and fine chemicals; agri commodities; and water purifiers, as well as exports marine and leather products. HUL has over 35 brands spanning 20 distinct categories. Its portfolio of brands includes the brand names like - 3 Roses, Annapurna, Brooke Bond, Taaza, Bru, Kissan, Knorr, Kwality Wall’s, Lipton, Modern, Red Label, and Taj Mahal brand names; personal products under the Aviance, Axe, Breeze, Clear, Clinic Plus, Closeup, Dove, Fair & Lovely, Hamam, LEVER Ayush Therapy, Lakme, Lifebuoy, Liril 2000, Lux, Pears, Pepsodent, Pond's, Rexona Soap, Sunsilk, and Vaseline brand names; and home care products under the Active Wheel, Cif, Comfort, Domex, Rin, Sunlight, Surf Excel, and Vim brand names and water purifiers under the brand name Pureit. As on March 31, 2013, Company had over 35 brands spanning 20 distinct categories. From April 01, 2013, Aquagel Chemicals Pvt Ltd becomes a subsidiary of Hindustan Unilever Ltd. On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer priced at Rs. 600 per share. The company is locally compared with ITC, Godrej Consumer, Dabur India, Colgate, Marico, Emami, Godrej Ind, P&G, Gillette India, Bajaj Corp, Jyothy Labs, Amar Remedies, JHS Svendgaard, GKB Ophthalmics and Globally compared with Associated British Foods Plc of London, Colgate-Palmolive Co of New York, Kimberly-Clark Corp of USA, Procter & Gamble Co of USA, Nestle S.A of Europe, Pepsico Inc of USA, Coca- Cola Co of USA, Mondelez International Inc of USA (earlier known as Kraft Foods Inc which acquired Cadbury’s), Heineken Nv of Amsterdam, Starbucks Corp of USA, McDonald’s Corp of USA, Yum! Brands Inc of USA, Danone of Paris, Asahi Group Hld Ltd of Japan, and Kerry Group of Dublin.
Investment Rationale: 
HINDUSTAN UNILEVER LTD is a play on consumption growth in India. Hindustan Unilever Limited (HUL) is India's largest Fast Moving Consumer Goods Company with a heritage of over 75 years in India and touches the lives of two out of three Indians. HUL has over 35 brands spanning 20 distinct categories such as soaps, detergents, shampoos, skin care, toothpastes, deodorants, cosmetics, tea, coffee, packaged foods, ice cream, and water purifiers, the Company is a part of the everyday life of millions of consumers across India. Its portfolio includes leading household brands such as Lux, Lifebuoy, Surf Excel, Rin, Wheel, Fair & Lovely, Pond’s, Vaseline, Lakmé, Dove, Clinic Plus, Sunsilk, Pepsodent, Closeup, Axe, Brooke Bond, Bru, Knorr, Kissan, Kwality Wall’s and Pureit. HUL is a subsidiary of Unilever, one of the world’s leading suppliers of fast moving consumer goods with strong local roots in more than 100 countries across the globe with annual sales of about €49.8 billion in 2013. Unilever has about 67.23 % shareholding in HUL. The Company has over 16,000 employees and has an annual turnover of around Rs. 28,019.13 Cr (financial year 2013 – 2014). 

                             The Indian Fast Moving Consumer Goods (FMCG) sector is the fourth largest in the Indian economy and has a market size of $1,310 Cr. This industry primarily includes the production, distribution and marketing of consumer packaged goods, that is those categories of products which are consumed at regular intervals. The FMCG market is set to treble $3,340 Cr in 2016. Penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. The Indian FMCG industry represents nearly 2.5 % of the country’s GDP. The industry has tripled in size in past 10 years and has grown at 17 % CAGR in the last 5 years driven by rising income levels, increasing urbanization, strong rural demand and favourable demographic trends. Food products and personal care together make up two-third of the sector’s revenues. Rural India accounts for more than 70 Cr consumers or 70 % of the Indian population and accounts for 50 % of the total FMCG market. With changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $8,000 Cr by 2026 in towns with population of up to 10 lakh.  With significant distribution scale, a portfolio of iconic brands and leading market share in many categories, we give India’s largest consumer products firm a narrow economic moat rating. Hindustan Unilever’s (HUL) products reach about 70 lakh outlets across India, the largest distribution network among peers. 19 of its brands generate annual turnover of over Rs. 500 Cr, or $ 8 Cr, each; while a good 95 % of products hold the two leading spots in their respective categories in terms of market share. To ensure that its dominance remains intact, the company is constantly investing in product innovation and supporting brands via the media. As the company innovates to bring new-to-India products to market and gains further scale benefits it is anticipate that HUL’s operating margins will expand over the coming decade, keeping returns above its cost of capital. HUL’s ability to innovate ahead of competition is truly remarkable. HUL has impressive ability to expand margins despite mounting competition in soap and detergents, which contributes 47 % to sales. This has been possible by launching new products such as fabric softeners, liquid detergents ahead of competitors. At the same time, its rural strategy of converting local villagers to salesmen has allowed them to access the interior regions of India, and sell them one rupee sachets of its products, keeping volumes buoyant. Personal products, contributes 28 % to sales & is a big opportunity for HUL to drastically improve its margins. The under-penetration characteristics of this category will allow HUL to leverage the breadth of its brands across price points, to lead adoption across affluent as well as poor households in India. Its recent launches of TRESemme and Tony & Guy brands, is a step in that direction to explore how far up the price band can be expanded in this luxury category. 

                                      Hindustan Unilever's (HUL) narrow economic moat stems from its portfolio of iconic brands--which allows the company to continue holding the top two spots in terms of market share across 95 % of its product categories, despite new entrants. In fact, eleven of the company's brands each drive over Rs. 1,000 Cr in annual sales, while another eight generate annual revenue in excess of Rs. 500 Cr each. Furthermore, HUL’s large retail distribution network which directly touches 32 lakhs outlets of India's estimated 85 lakhs retail outlets, and this is the largest coverage of universe in all of consumer India. Not only this, the secondary distribution of HUL’s products reaches over 80 % of all retail outlets in the country, making its products easily available across the country. HUL’s products play across the price points caters to the premium-mid-and-low end of the markets, and its premium brands are enjoying pricing power compared to its local brands of Marico in the body lotion category, and Godrej in soaps. Also when we give a snap shot look at HUL's 15 year financials, it turns out that it has been consistant in its returns. HUL's 15 years average of ROCE comes at 99.85 % & 15 year average of ROE comes at 89.67 %, its returns on invested capital (ROICs) which comes to an average 53 % over the next five years, well over its 10.9 % estimated cost of capital, supporting HUL's narrow economic moat. Here is HUL's 15 years financial snap shot - 

YEARSEPS(Rs.)P/E(x)BV(Rs.)Div/Sh(Rs.)ROCE(%)ROE(%)
19994.8646.299.552.9065.0051.00
20005.9534.6811.303.5066.7052.67
20017.4629.9713.825.0061.5050.64
20028.0422.6016.625.1658.0548.38
20038.0525.4209.715.5059.1382.87
20045.4426.3709.505.0045.0857.23
20056.4030.8210.475.0067.6661.09
20068.4125.7412.346.0065.8968.14
20078.7324.5006.619.00138.72122.97
200811.4620.7209.457.50135.55120.30
200911.4721.8609.457.50118.59121.34
201010.1023.6311.846.50106.7885.25
201110.5826.8912.196.50102.6686.70
201212.4632.8916.257.5095.4076.61
201317.5630.2112.3718.50163.59141.98
201417.8832.0115.1513.00147.56118.01

Looking forward, it can be expected that HUL's free cash flow will roughly equals its annual earnings in the future, as it has done in the past. And, it can be expected that its ROIC's to remain above the Cost of Capital (COC) for at least the next decade, given its strong brands with pricing power, negative working capital cycle, and low acquisition strategy in India. HUL had already given two Buybacks till now, one was in October 2007 where HUL bought back 3,02,35,772 equity shares of Re. 1 each at an average price of Rs. 207.13, spending Rs. 626.27 Cr (approved not more than Rs. 230). The second buyback came in June 2010 where HUL bought back 2,28,83,204 equity shares of Re. 1 each at an average price of Rs. 273.25 spending Rs. 625.29 Cr (approved not more than Rs. 280). So, looking at its strong cash flows and with the Free Reserves of at Rs. 3,507.76 Cr (as on 31 March 2015), another buyback can be expected at around Rs. 700 per share, and company may utilize around Rs. 930 Cr for this buyback. A buyback improves many financial metrics like ROE & EPS. Both of these metrics have number of shares as denominator & buybacks reduces number of shares, thus increasing ROE & EPS. Goods and Service Tax (GST) will replace the multiple indirect taxes levied on FMCG sector with a uniform, simplified and single-pint taxation system and this is likely to be implemented soon & the benefits are likely to come in by the end of FY’16. The rate of GST on services is likely to be 16 % and on goods is proposed to be 20 %. A swift move to the proposed GST may reduce prices, bolstering consumption for FMCG products. While the rural market certainly offers a big attraction to marketers, it would be naïve to think that any company can enter the market without facing any problems and walk away with a sizable share. Distribution is the most important variable in the marketing plans of most consumer goods manufacturers, because managing such a massive sales and distribution network is in itself a huge task. This sector will continue to see growth as it depends on an ever-increasing internal market for consumption, and demand for these goods remains more or less constant, irrespective of recession or inflation. Hence this sector will grow, though it may not be a smooth growth path, due to the present world-wide economic slowdown, rising inflation and fall of the rupee. This sector will see good growth in the long run and hiring will continue to remain robust.

Outlook and Valuation:
HUL is the largest company in the FMCG industry, with market leadership in soaps, detergents and personal care categories. The company is a subsidiary of Anglo Dutch FMCG giant Unilever. It has over 35 brand spanning 20 distinct categories; the company is a part of the everyday life of millions of consumers across India. It has strong brands, with market leadership in most of the categories it operates in. It has a large distribution network with direct reach of over 1m retail outlets. The FMCG Industry is characterized by a well-established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments. In the last decade the FMCG sector has grown at an average of 11 % a year; in the last five years, annual growth accelerated to 17 % and last year it grew 5 %. Within this, urban growth was 4 % and rural growth was 8 % as per Ac Nielson MAT numbers. The rural India accounts for 70 % of India’s population with 56 % of National Income and commands 64 % of total expenditure and one third of the total savings. The Indian FMCG sector is the fourth largest sector in the Indian economy. Indian rural markets contribute around 45 % in HUL sales

                                                HUL did its first-of-its-kind deal with the music channel MTV- a part of Viacom 18 media group for five of its best-selling brands. The deal will help HUL to showcase its brands in six 60-minute movies, one aired every month on Viacom 18's youth and music platform. Each movie is directed by a Bollywood’s young directors like Anurag Basu for Sunsilk; Nikhil Advani for Ponds; Rohan Sippy for Tresemme; Abhinay Deo for Lakme; Anurag Kashyap & Shoojit Sircar for Close up. The agreement would include not just the movies themselves but interviews with directors, on-ground and on-air promotions of the films, airtime for ads etc. The Elements of these movies such as songs and trailers of the movies are likely to give a boost to HUL. The deal size is being pegged by industry insiders around Rs. 20-25 crore, all inclusive. With the launch of MTV Movies, HUL will redefine the way in which brands tell their stories to consumers. These will focus on communicating the brand purpose and build brand love. 

                                                  On Financial side HUL’s Performance was quite satisfactory. During Q4FY15, HUL’s Revenues jumped 8.2 % YoY to Rs. 7,680 Cr. Domestic consumer business grew by 8.9 % led by 6 % volume growth and 3 % jump in price realization. The Operating profit increased 22.3 % YoY to Rs. 1,320 Cr. The operating margins grew 2.00 % YoY to 17.2 % led by 2.70 % drop in Raw Material costs and 0.50 % decrease in other expenses and 0.30 % decline in employee cost. However, this decrease was partially offset by 1.50 % increases in Advt & Promotional spends. Net profit increased by 23.4 % YoY to Rs. 1,020 Cr. Excluding exceptional gains of Rs. 180 Cr related to property sale, the Adj. PAT increased 3.0 % YoY to Rs. 900 Cr. Other segments reported satisfactory performance during the quarter – Beverages segment reported 12.3 % YoY growth in revenues to Rs. 980 Cr and 11.4 % YoY jump in EBIT to Rs. 180 Cr and Processed Food recorded 13.6 % YoY increase in revenues to Rs. 480 Cr and 10.6 % growth in EBIT to Rs. 25.4 Cr. HUL’s all three detergent brands – Surf, Rin and Wheel have crossed Rs. 2,000 Cr mark. Lifebuoy and FAL also crossed Rs. 2,000 Cr mark. Magnum Ice-cream extended to Delhi and Kolkata & now has presence in 7 cities. One of the HUL's newest products Pureit achieved its break even. The company is witnessing the momentum coming back in Close Up. The business environment for HUL continues to be challenging with slowing growth being witnessed on both the value front and volume fronts. The overall competitive intensity has stepped up in various categories while the up-trending has come to a pause. The discretionary category which was outpacing the other category over a longer term has come to a pause, but the company believes it to be a short-term phenomenon. HUL has a robust product pipeline, and has a strong and lucrative personal products portfolio, and expanding distribution network. HUL is also a good play because it has a revenue growth from a medium to long term perspective, however due to increase in royalty, steep hike in tax rate and slowdown in discretionary segments remains an overhang on this stock. Depreciation in rupee impacts price of imported raw materials. The price war in HUL’s popular segments with new entrants entering the fray could hit the company hard. HUL pay’s rich dividends and one can hold this stock from a three five year perspective and focus on new product launches and market share gains in existing categories. Also there could be another buyback at around Rs. 700 per share. At current price of Rs. 863.75 the stock is trading at P/E of 41.92x FY16E on EPS of Rs. 20.60 and 34.96x FY17E on the EPS of Rs. 24.70. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.  

KEY FINANCIALSFY14FY15FY16EFY17E
SALES ( Crs)28,019.1030,734.1034,442.6039,602.50
NET PROFIT (₹ Cr)3,555.303,837.204,456.805,342.90
EPS ()16.4017.7020.6024.70
PE (x)54.5050.5043.4036.20
P/BV (x)59.1052.0047.9038.10
EV/EBITDA (x)42.2037.4030.7025.80
ROE (%)119.50109.60114.70117.00
ROCE (%)88.2094.4098.1092.30

 As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % on every purchase(Why Strict stop loss of 8 % ?) - Click Here


*As the author of this blog I disclose that I do hold Hindustan Unilever Ltd in my investment portfolio.

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Sunday, November 23, 2014

COLGATE PALMOLIVE (INDIA) LTD : SMILING ALL THE WAY !!!

Scrip Code: 500830 COLPAL

CMP:  Rs. 1,893.20; Accumulate at Every Dips.
Short term Target - Rs. 2,060; Medium to Long term Target – Rs. 2,366; STOP LOSS – Rs. 1741.74; Market Cap: Rs. 25,746.16 Cr; 52 Week High/Low: Rs. 2049.00 / Rs. 1235.20.
Total Shares: 13,59,92,817 shares; Promoters : 6,93,56,336 shares – 51.00 %; Total Public holding : 6,66,36,481 shares – 49.00 %; Book Value: Rs. 44.11; Face Value: Rs. 1.00; EPS: Rs. 37.47; Dividend: 2700.00 % ; P/E: 50.52 times; Ind. P/E: 47.16; EV/EBITDA: 33.28.
Total Debt: ZERO; Enterprise Value: Rs. 25,596.88 Cr.

COLGATE PALMOLIVE (INDIA) LTD: The Company was founded on 23 September, 1937 and is based in Mumbai, India. The company is the subsidiary of Colgate Palmolive Company of USA. The company offered 11,79,000 equity shares of Rs. 10 each at a premium of Rs. 15.00 to the general public in November, 1978. Colgate-Palmolive (India) Limited provides oral care products. The company has its good Bonus history as it gave 1:1 bonus in 1982, 1:1 in 1985, 1:1 in 1987, 1:1 in 1989, 3:5 in 1991 and finally 1:1 in 1993. In November 2007, the Company in its First-of-its-Kind investor friendly move announced a Reduction of Share Capital under section 100 of Companies act of 1956. It gave back Rs. 122.40 Cr to its shareholders by reducing the face value of its equity shares from Rs. 10 to Re. 1.00 and accordingly its equity share capital came down from Rs. 135.99 Cr to Rs. 13.59 Cr. And Rs. 9 per share was paid as a ‘Deemed Dividend’ and was tax free in the hands of shareholders. The share of the Colgate Palmolive after this got relisted on BSE on December 17, 2007 at Rs. 380 per share. The company offers products that include toothpastes, toothpowder and toothbrushes under the 'Colgate' brand, as well as a specialized range of dental therapies under the banner of Colgate Oral Pharmaceuticals. The company also provides a range of personal care products under the brand name 'Palmolive'. The oral care product mix includes: Toothpastes which comprises of Colgate Dental Cream, Colgate Total 12, Colgate Kids Tooth Paste, Colgate Fresh Energy Gel, Colgate Herbal, Colgate Herbal White, and Colgate Cibaca Top. Its Tooth Brushes products comprises of Colgate Kids, Colgate Navigator Plus, and Colgate Sensitive, Colgate Extra-Clean, Colgate Super 55, Colgate Cibaca Top, Colgate Motion, Colgate Massager, Colgate Super Junior Flexible, and Colgate Super Child Flexible. Other products offered by the company include tooth powder and whitening products. Its Personal care product mix includes: Shower gel which comprises of Palmolive Aroma Shower Gel – Sensual, Palmolive Aroma Shower Gel – Relax, and Palmolive Aroma Shower Gel – Revive. It’s Bar soaps products comprise of Palmolive Aroma Soap – Revive and Palmolive Aroma Soap – Relax. Company’s Liquid hand wash products comprise of Palmolive Aroma Liquid Hand Wash – Revive and Palmolive Aroma Liquid Hand Wash – Relax. Colgate’s Talcum Powder products comprises of Palmolive Aroma Talcum Powder - Revive and Palmolive Aroma Talcum Powder – Relax. In November 2007, it acquired a 75% equity interest in Advanced Oral Care Products, Professional Oral Care Products and SS Oral Hygiene Products, the company is the fastest growing and one of the oldest companies catering to the personal care products. Colgate Palmolive (India) Ltd is locally compared with Amar Remedies Ltd, Farmax India Ltd, Gillette India Ltd, Godrej Consumer Products Ltd, Hindustan Unilever, JHS Svendgaard Laboratories Ltd, Jyothy Laboratories, Nirma Ltd, Procter & Gamble Ltd and Globally with Procter & Gamble of USA, Unilever PLC of UK, Beiersdorf AG of Germany, Reckitt Benckiser PLC of UK, Kimberly-Clark Corporation of USA, Church & Dwight Co., Inc of USA, Clorox Company of USA, Paos Holdings Berhad of Malaysia, Niitaka Co ltd of Japan.

Investment Rationale:

Colgate Palmolive (India) Limited is India’s leading provider of scientifically proven oral care products with multiple benefits at various price points. Colgate has a market share of 43.6 % in the oral care in India. India’s oral care market is estimated around $100 Cr and is expected to grow at a CAGR of about 14 % during 2011–2015, which is much higher than the global growth rate in this sector. This has led to an increase in the number of oral care companies entering the space, thereby stiffening the competition. The combined share of all the local brands, including Vicco, Ajanta, Anchor, Smyle and Baidyanath has now slipped to 2 % in calendar year of 2013 from more than 5 % from two years ago. Regional players had over 15 % share in the toothpaste market some 10 years ago. So the big marketers such as Colgate, Hindustan Unilever and the Indian player Dabur have widened their reach to almost all rural and urban markets and have slashed its entry-level prices to Rs. 5.00 and Rs. 10 which is giving a hit to local brands. Also, multinationals like Procter & Gamble (P&G) and GlaxoSmithKline (GSK) have now entered the oral-care market, increasing the competition, which is affecting small & regional players. GSK's Sensodyne has already gathered more than 2.3 % share in the Indian oral-care market. Sensodyne has crossed Rs. 100 crore in annual revenues and it leads the sensitive toothpaste category with a 27 % market share, while P&G's mass brand Oral B has garnered a market share of 0.30 % in the first six months of its launch. Companies such as Dabur having a market share of 11 % and Hindustan Unilever have doubled their rural reach over the past couple of years and have grown their market share. Market leader Colgate, too, increased its share in the toothpaste segment to 54 % last year, from 51 % in 2011. In India only 42 % of the people living in villages and small towns use tooth-paste; this proportion is expected to increase with the rising rural income and greater awareness about oral hygiene through advertisements, dental camps and free dental checkups. Colgate has done very well in this regard by building its strong distribution strength across rural India. Colgate now has the highest reach among all the consumer products companies in the country. Also, more than 30 % of India’s population suffers from gum sensitivity and oral hygiene problems. Thus, India’s urban population is continuously upgrading from regular tooth-pastes to dental creams due to which this category is growing at 30 % to 40 % annually. To carter the urban modern population, Colgate has from time to time is introducing innovative products like Colgate SlimSoft Charcoal launched recently in August 2014, which is India’s first and only toothbrush with super slim tip bristles infused with Charcoal priced at Rs. 60. Similarly it also introduced Colgate SlimSoft last year; it also launched Sugar Acid Neutraliser, Visible white RegimenOver the years, Colgate has built an extensive oral care portfolio through constant innovation, thereby offering products across the value pyramid and within each sub-category such as sensitive toothpaste, gum care toothpaste, electric brush, kids brush, etc. It has been aggressive on extension of its premium portfolio to capture the up-trading consumers. In FY14, it launched two varieties of toothpastes like Active healthy White, Max Fresh Tea and Slim Soft Toothbrushes. Hence, with constant innovations and higher A&P spends, it is believed that Colgate would continue to remain the dominant player and be the largest beneficiary of increasing penetration levels in the country which is currently at 75 %. Colgate Palmolive also falls under FMCG category and this sector is the fourth largest in the Indian economy and has a market size of $13.1 billion. The FMCG market is all set to treble at US$ 33.4 billion by 2015. The penetration level as well as per capita consumption in most product categories like jams, toothpaste, skin care, hair wash etc in India is low indicating the untapped market potential. The Indian FMCG industry represents nearly 2.5 % of the country’s GDP. The industry has tripled in size in past 10 years and has grown at 17 % CAGR in the last 5 years driven by rising income levels, increasing urbanization, strong rural demand and favourable demographic trends. Food products and personal care together make up two-third of the sector’s revenues. Rural India accounts for more than 70 % of the Indian population and accounts for 50 % of the total FMCG market. With the changing lifestyle and increasing consumer demand, the Indian FMCG market is expected to cross $8,000 Cr by 2026 in towns with population of up to 10 lakh. Distribution is the most important variable in the marketing plans of most consumer goods manufacturers, because managing such a massive sales and distribution network is in itself a huge task. This sector will continue to see growth as it depends on an ever-increasing internal market for consumption, and demand for these goods remains more or less constant, irrespective of recession or inflation. Hence the growth in this sector will continue to remain robust. Colgate has done well in this regard by building strong distribution strength across rural India. Colgate now has the highest reach among all consumer products companies in the country.

Outlook and Valuations:
Colgate has been present in India for more than 76 years & has products across all orla care categories and prices points. It is one of the most popular & preferred oral hygiene brands in the coountry. It has wide range of toothpastes and toothbrushes are very well known and has strong brand recall. The Company also provides a range of personal care products under the ‘Palmolive’ brand name. Colgate has been ranked as India’s No. 1 Most Trusted Brand across all categories for four consecutive years from 2003 to 2007 and in 2011 and 2012 by Brand Equity’s Most Trusted Brand Survey. It is the only brand to be in the top three from 2001-2012. Colgate Palmolive is the largest player in the oral care segment in India with the market share as of June, 2014 of about 57 % in toothpaste and 42.6 % in toothbrush category. In spite of Procter & Gamble’s (P&G) re-entry into the toothpaste segment in India in June, 2013 with its brand Oral B, Colgate’s market share has only strengthened. Colgate has increased its market share in toothpaste from 54.7 % in June, 2012 to 57.1 % in April, 2014. Similarly, the market share in toothbrush has also increased from 38.7 % to 42.6 % for the same period. Colgate is believed to be the second largest player in the toothpaste category, HUL, is losing its market share with Dabur India inching share from 10 % to 11 % in last two years. Further, regional players like Vicco, Ajanta, Anchor, Smyle and Baidyanath have also witnessed a loss in market share in toothpastes. On performance side, Colgate Palmolive reported a 10.9 % increase in sales to Rs. 990 Cr. It reported PAT growth of 18.3 % on 2.40 % margin expansion led by 7 % volume growth in toothpaste to Rs. 130 Cr. Its EBITDA margins expanded 2.40 % as 0.90 % higher staff costs. EBITDA increased by 27.5 % to Rs. 186 Cr. Colgate’s Toothpaste volumes were up by 7 % with overall volumes up 5 %. Rural demand has been better than urban demand which declined at higher pace. Colgate’s Toothpaste market share was up 0.70 % at 56.7 % v/s 56 % in JanSep 2013. Colgate’s Toothbrush market share was up by 1.40 % YoY to 42.6 %. Colgate Palmolive’s new launches like Sugar Acid Neutraliser, Visible white Regimen and Colgate Slim soft toothbrush’s success is ensuring strong visibility. Colgate Palmolive enjoys strong Brand recall along with strong innovations in pipeline and has focused approach which ensures robust growth for the company. Company commands premium valuations due to strong brand, sustained high ROE and ROCE of more than 100 % and dividend pay-out ratio of 75 % & also there's a possibility of bonus issues by the company as it has been more the two decades from the last bonus given by the company so investors can expect bonus soon as company has enough reserves. Higher dividend payout exuberates confidence on future cash generation. At the current market price of Rs. 1,873.20, the stock is trading at a PE of 43.76 x FY15E and 36.80 x FY16E respectively. The company can post Earning per share (EPS) of Rs. 42.80 for FY15E and Rs. 50.90 for FY16E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in COLGATE PALMOLIVE INDIA LTD with a Short term target of Rs. 2,060 and my conservative  price for Medium to Long term investment is Rs. 2,366.00 but looking at the potential of the company to earn it could give Rs. 3000 + in near next 3 years time .

KEY FINANCIALSFY13FY14FY15EFY16E
SALES ( Crs)3,163.903,578.204,089.504,772.90
NET PROFIT (₹ Cr)496.80484.30582.10692.80
EPS ()36.5035.6042.8050.90
PE (x)47.0048.2040.1033.70
P/BV (x)47.7038.9035.6032.30
EV/EBITDA (x)34.8034.8027.5022.00
ROE (%)101.4690.0074.7068.85
ROCE (%)153.28127.54118.44109.85

I would buy COLGATE PALMOLIVE (INDIA) LTD for Medium to Long term for target of Rs. 2,366.00 and for the shorter term the target would be Rs. 2,060.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 1,741.74 on every purchase(Why Strict stop loss of 8 % ?) - Click Here


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Saturday, November 23, 2013

HINDUSTAN UNILEVER LTD : BEST IN FMCG !!!


Scrip Code: 500696 HINDUNILVR
CMP:  Rs. 571.60; Buy at every dips.

Medium to Long term Target: Rs. 633; STOP LOSS – Rs. 525.90; Market Cap: Rs. 1,23,612.44 Cr; 52 Week High/Low: Rs. 725.00 / Rs. 432.15

Total Shares: 216,25,69,017 shares; Promoters : 145,44,12,858 shares –67.25 %; Total Public holding : 70,81,56,159 shares – 32.74 %; Book Value: Rs. 12.37; Face Value: Rs. 1.00; EPS: Rs. 16.61; Div: 1850.00 % ; P/E: 34.43 times; Ind. P/E: 38.24; EV/EBITDA: 25.69.
Total Debt: ZERO Cr; Enterprise Value: Rs. 1,23,287.81 Cr.

HINDUSTAN UNILEVER LTD: The Company was founded in 1931 and is based in Mumbai, India. The company was formerly known as Hindustan Lever Limited and changed its name to Hindustan Unilever Limited in 2007.  Unilever Ltd on November 17, 1956, offered 5,57,000 shares of Rs. 10 each to the public at par. In February 1980, in order to reduce the Non- Resident holding in the company to 51 %, Unilever Ltd offered for sale of 42,39,523 equity shares of Rs. 10 each at a premium of Rs. 9.50 per share, this was out of its shareholding in the company. Hindustan Unilever Limited, is a Fast Moving Consumer Goods (FMCG) company – it provides home and personal care products; foods and beverages in India and internationally. The company operates in 7 business segments. The company offers soaps and detergents, including soaps, detergent bars, detergent powders, detergent liquids, and scourers; and personal products - such as oral care, skin care, hair care, deodorant, talcum powder, and color cosmetic products, as well as Ayush services. It also provides beverages - including tea and coffee; foods, such as atta (flour), salt, and bread; culinary products comprising tomato and fruit based products, and soups; and ice creams, such as ice creams and frozen desserts. In addition, the company offers chemicals, such as glycerin and fine chemicals; agri commodities; and water purifiers, as well as exports marine and leather products. HUL has over 35 brands spanning 20 distinct categories. Its portfolio of brands includes the brand names like - 3 Roses, Annapurna, Brooke Bond, Taaza, Bru, Kissan, Knorr, Kwality Wall’s, Lipton, Modern, Red Label, and Taj Mahal brand names; personal products under the Aviance, Axe, Breeze, Clear, Clinic Plus, Closeup, Dove, Fair & Lovely, Hamam, LEVER Ayush Therapy, Lakme, Lifebuoy, Liril 2000, Lux, Pears, Pepsodent, Pond's, Rexona Soap, Sunsilk, and Vaseline brand names; and home care products under the Active Wheel, Cif, Comfort, Domex, Rin, Sunlight, Surf Excel, and Vim brand names and water purifiers under the brand name Pureit. As on 31st March 2013, Company had over 35 brands spanning 20 distinct categories. From April 01, 2013, Aquagel Chemicals Pvt Ltd become a subsidiary of Hindustan Unilever Ltd. On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer priced at Rs. 600 per share.  The company is locally compared with ITC, Godrej Consumer, Dabur India, Colgate, Marico, Emami, Godrej Ind, P&G, Gillette India, Bajaj Corp, Jyothy Labs, Amar Remedies, JHS Svendgaard, GKB Ophthalmics and Globally compared with Associated British Foods Plc of London, Colgate-Palmolive Co of New York, Kimberly-Clark Corp of USA, Procter & Gamble Co of USA, Nestle S.A of Europe, Pepsico Inc of USA, Coca- Cola Co of USA, Mondelez International Inc of USA (earlier known as Kraft Foods Inc which acquired Cadbury’s), Heineken Nv of Amsterdam, Starbucks Corp of USA, McDonald’s Corp of USA, Yum! Brands Inc of USA, Danone of Paris, Asahi Group Hld Ltd of Japan, and Kerry Group of Dublin.
Investment Rationale:
HINDUSTAN UNILEVER LTD is a play on consumption growth in India. The company has displayed its ability to effect price hikes and avoid impact of inflation in vegetable oils, which, combined with improved outlook for fabric wash and strong growth in processed foods and beverages, boosts the positive outlook on the stock. The recent moves by the company to dispose of its non-core assets including few properties give it a near term upside. The FMCG market in India is estimated to grow to US$ 100 billion by 2025, according to market research firm Nielsen. In the last decade the FMCG sector has grown at an average of 11 % a year; in the last five years, annual growth accelerated to 17 %. The FMCG Industry is characterized by a well-established distribution network, low penetration levels, low operating cost, lower per capita consumption and intense competition between the organized and unorganized segments. The rural India accounts for 70 % of India’s population, 56 % of National Income, 64 % of total expenditure and one third of the total savings. The Indian FMCG sector is the fourth largest sector in the Indian economy. Indian rural markets contribute around 45 % in HUL sales. In-order to tap the rural markets, HUL has conceived a project named Project Shakti. This project was started in 2001 with the aim of increasing the company's rural distribution reach as well as providing rural women with income-generating opportunities. This is a case where the social goals are helping achieve business goals. The recruitment of a Shakti Entrepreneur or Shakti Amma (SA) begins with the executives of Hindustan Unilever Ltd identifying the uncovered village areas. The representative of the company meets the panchayat and the village head and identify the woman who they believe will be suitable as a SA. After training she is asked to put up Rs. 20,000 as investment which is used to buy products for selling. The products are then sold door-to-door or through petty shops at home. On an average a Shakti Amma makes a 10 % margin on the products she sells. The main advantage of the Shakti program for HUL is having more feet on the ground. Shakti Ammas are able to reach far flung areas, which were economically unviable for the company to tap on its own, besides being a brand ambassador for the company. Moreover, the company has ready consumers in the form of SAs who become users of the products besides selling them. This gives thrust to the company’s volumes. On July 04, 2013, the parent company Unilever Plc raised its stake in HUL from 52.48 % to 67.28 %, by acquiring 31,95,63,398 shares representing 14.784 % in HUL via open offer priced at Rs. 600 per share amounting to Rs. 19,174 Crs. The total shares tendered by HUL shareholders were 31,99,91,578 shares out of which 31,95,63,398 shares were accepted by Unilever Plc. The tender offer was announced on April 30, 2013 and began on June 21, 2013 and ended on July 4, 2013. Unilever wanted to raise its stake to 75 % from 52.48 %, but managed to hike its stake to 67.26 %. The stake rise by the parent company shows confidence in the India consumption growth story and parent believes that India is one of the biggest markets for Unilever and it would be beneficial to acquire a larger share in its Indian Arm. HUL also launched few products in the beauty portfolio with offerings like Lakme Youth Infinity range, Lakme Cleanup Clear Pores range, Ponds Pimple Clear facewash and Dove facewash with Nutrium Moisture. HUL continues to focus on innovations as it believes that it is these innovations that will bring strong growth when the market scenario improves.

Outlook and Valuation:
Business environment for HUL continues to be challenging with slowing growth being witnessed on both the value and volume fronts. The overall competitive intensity has stepped up in various categories while the up-trending has come to an pause. The discretionary category which was outpacing the other category over a longer term has come to a pause, but the company believes it to be a short-term phenomenon. HUL, in its board meet in January 2013, approved a royalty of 3.15 per cent of turnover effective from February 2013. Till January 2013, the company paid 1.4 per cent of the total turnover as royalty to its parent company, Unilever. The company will increase the royalty from 1.4 per cent to 3.15 per cent in a phased manner till March 2018. On performance side, HUL’s 2QFY14 revenues grew by 9.2 % YoY to Rs. 6,890 Cr owing to higher than expected volume growth of 5 %. HUL saw a recovery in Personal Product (PP) growth to 12 % YoY against 2 % of 1QFY14 which is the key positive. Higher sales in PP were at the cost of lower margins which were down by 1.41 % YoY. Waning price led growth and higher competitive intensity in Sales & Distribution has not only impacted sales growth of the segment but also its margins. HUL’s EBITDA margin remained flat at 15.7 % as EBITDA grew 11.1 % to Rs. 1,080 Cr. Lower than expected tax rate led to Adjusted PAT growth of 9.6 %. HUL has a robust product pipe, and has a strong and lucrative personal products portfolio, and expanding distribution network. But with waning price growth in Sales & Distribution, difficult demand environment in packaged foods and personal products and with increased competitive intensity; it is expected that company’s revenue growth will curtail. However, HUL is also a good play because it has a revenue growth from a medium to long term perspective, however due to increase in royalty, steep hike in tax rate and slowdown in discretionary segments remains an overhang on this stock. Depreciation in rupee impacts price of imported raw materials. A rise in crude oil prices can impact packaging costs and indirectly / directly impact palm oil and LAB prices. Increase in palm oil prices may lead to gross margin contraction. The price war in HUL’s popular segments with new entrants entering the fray could hit the company hard. HUL pay’s rich dividends and one can hold this stock from a three five year perspective and focus on new product launches and market share gains in existing categories. At the current market price of Rs. 571.60, the stock P/E ratio is at 34.43 x FY14E and 30.73 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 16.60 and Rs. 18.60 respectively. Hindustan Unilever Ltd could be a good buy for the target price of Rs. 633 for Medium to Long term investment

KEY FINANCIALSFY12FY13FY14EFY15E
SALES ( Crs)22,987.7026,317.2028,726.2032,417.20
NET PROFIT (₹ Cr)2,686.503,385.1035,90.304,034.80
EPS ()12.4015.6016.6018.60
PE (x)47.6037.8035.6031.70
P/BV (x)36.5047.2033.2025.20
EV/EBITDA (x)35.3029.4026.4023.00
ROE (%)83.40103.10104.5087.60
ROCE (%)257.80489.10431.00227.40

I would buy HINDUSTAN UNILEVER LTD for Medium to Long term for target of Rs. 633. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of 8 % or ₹ 525.90 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

*As the author of this blog I disclose that I do hold HINDUSTAN UNILEVER LTD in my investment portfolio.

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