Gained Decade High Market Share In FY22, Buy This Diversified FMCG Stock For 23% Gain: Motilal Oswal

Stock Outlook

The Current Market Price (CMP) of Hindustan Unilever Ltd is Rs 2,205.50, with a loss of 1.32% from the previous close of Rs 2,211.60. The stock had touched a 52-week high of Rs 2,859.30/share and a 52-week low of Rs 1,901.55/share. In the last 1 month, the stock has given positive returns, however, in the last 1 year, the stock didn't perform well ahs gave negative returns of 7.12%. While in 5 years, it has given a whooping 100.08% positive returns. While writing this report, the P/E of the stock is 58.99, while the sector P/E is 57.54. According to the CMP and the estimated Target Price by the brokerage, the stock has the potential to gain 23%.

Hindustan Unilever continues to evolve as a digitally capable enterprise, catering to emerging consumer needs. The core business continues to use analytics and machine learning to improve efficiency. It is leveraging economies of scale while remaining nimble. Hindustan Unilever has always been ahead of its peers in terms of technology adoption and analytics and continues to widen its lead.

Focus on Technology - B2B app is now present in 800k outlets

Hindustan Unilever's B2B app - Shikhar - is now present in 800k outlets. The app enables zero-touch online ordering and has helped solve two of the biggest challenges that retailers face - capital (tie-up with SBI for financing) and space (quicker inventory turnover with a faster fulfillment). Shikhar has been Hindustan Unilever's response to the increasing prevalence of new-age B2B distribution platforms. Its continued adoption by retailers will only strengthen its GT ecosystem.

Company's Performance & Business Updates

Hindustan Unilever's regionalization strategy continues to focus on delivering relevance across different regions through product design and differentiated marketing.

Some of the tangible benefits that this strategy has helped deliver are as follows: 1) In Beauty and Personal Care, Hindustan Unilever designed and introduced region-specific products based on consumer needs. Its market share in Hair Care touched a 15-year high in CY21. 2) Even in Skin Care, it developed a moisturizer designed to perform in hot and humid weather conditions under Ponds to improve adoption. 3) Customizing of its Tea portfolio, to cater to regional tastes, led to a growth in market share.

The company is investing in e-commerce ahead of the curve. In the Premium Beauty portfolio, it is driving market development through innovations and extensive sampling. Lakme's D2C websites are seeing 2m customer visits per month and 30% of sales are accruing through the digital channel. Strengthening focus on D2C offerings will potentially help Hindustan Unilever ward off competition brought about by new-age BPC platforms.

Liquid detergents and fabric conditioners grew four times in the last five years to become a Rs 17b business. Surf Excel is now the biggest laundry brand.

Motilal Oswal Suggest Buy For Target Price of Rs 2,700/Share

Hindustan Unilever continues to place the building blocks for future growth and has been able to do so ahead of its peers. It continues to display the dexterity shown over the last decade, despite its larger size, even as it continues to grow v/s its peers. Its pre-COVID earnings had been extremely strong. It reported ~18% EPS CAGR in the four years ending FY20 before steeper commodity cost inflation (v/s peers) and the over-indexed discretionary portfolio adversely impacted its earnings in FY21 and FY22. The company's pre-COVID earnings growth was particularly impressive, given the weak mid-single-digit growth posted by its (much smaller) Staples peers over the same period.

The brokerage said, "Once the ongoing high material cost environment abates, we believe Hindustan Unilever could revert to mid-teens earnings growth. Hindustan Unilever is the best prepared among peers on the technology as well as the e-commerce strategy front to deal with potentially significant disruptions ahead. We maintain our Buy rating on the stock with a Target Price of Rs 2,700."

About - Hindustan Unilever Ltd

Hindustan Unilever is in the FMCG business, incorporated on 17 October 1933 as Lever Brothers India Ltd. The Company's FMCG business comprising primarily of Home Care, Beauty & Personal Care and Foods & Refreshment segments. Hindustan Unilever Limited (HUL) is India's largest Fast-Moving Consumer Goods company with its products touching the lives of nine out of ten households in the country. The Company has manufacturing facilities across the country and sells primarily in India. Hindustan Unilever's brands, spread across 20 distinct consumer categories, touch the lives of two out of three Indians. The Company is in the fast-moving consumer goods (FMCG) business comprising primarily of four business segments such as home care personal care foods and refreshments.