Published on 4/04/2020 5:21:36 PM | Source: ICICI Securities Ltd

Buy Hindustan Unilever Ltd For Target Rs. 2310 - ICICI Securities

Posted in Broking Firm Views - Long Term Report| #Hindustan Unilever Ltd #FMCG #ICICI Securities

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Exciting acquisition amid growing health awareness

As on March 23, 2020, Hindustan Unilever (HUL) has signed an agreement with Glenmark Pharmaceuticals to acquire its intimate hygiene brand VWash. The deal includes acquisition of intellectual property rights, including trademarks, design and know-how related to the VWash brand. As part of the deal, HUL will make most of the payment in cash upfront as well as pay a royalty on sales for three years. The companies, however, have not disclosed the amount of the deal. According to our estimates, sales of VWash brand were ~| 50 crore in FY19. The company could have spent ~| 200-250 crore for the acquisition.

The transaction is subject to fulfilment of certain conditions and both companies would be working together to complete this in the next few months. Glenmark, however, will continue to manage the business until the transaction is completed and will continue to manufacture for HUL for an agreed period of time.


HUL’s strong distribution network to aid penetration levels We believe VWash is majorly distributed through Glenmark Pharmaceuticals’ pharmacy and chemist stores. With HUL’s extensive distribution reach of 7+ million outlets and direct distribution of 3.5+ million retail outlets, we believe HUL would be able to market VWash on a much wider scale across geographies. This would help the product grow faster with the company, going forward.


Nascent & underpenetrated category Feminine intimate hygiene is a nascent and underpenetrated category within the female hygiene space. With the strong gross margins, the brand fits into HUL’s beauty & personal care segment. We believe the company is best positioned to grow the category as well as brand given its strong media spend power and robust presence in general trade. Overall, the female hygiene space is one of most underpenetrated categories.


Valuation & Outlook

The acquisition of Vwash would not make any material difference to growth. However, it has strong potential to grow into a bigger brand in the next five to 10 years. With respect to the recent outbreak of Covid-19, the personal wash category is likely to see strong growth in the next few quarters. Though the personal wash category is fully penetrated, it is expected to witness unprecedented increase in per capita consumption after increasing awareness on personal hygiene. Despite the extraordinary economic slowdown, HUL is likely to sustain robust revenue growth and strong operating margins. The company would continue to command a premium to the peers being the leader in the category. We change our recommendation from HOLD to BUY with a target price of | 2310/share.


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