Buy Hindustan Unilever Ltd For Target Rs.2,297 - Edelweiss Financial Services
Follow us Now on Telegram ! Get daily 10 - 12 important updates on Business, Finance and Investment. Join our Telegram Channel
https://t.me/InvestmentGuruIndiacom
Download Telegram App before Joining the Channel
Side effects of consolidation
Distributors of Hindustan Unilever (HUL) in Maharashtra are likely to stop supplying its products in phases from January 1. These issues have happened earlier also, and we expect HUL and distributors to come to an agreement soon since both need each other. In our view, these kind of differences and tussles would further drive consolidation in favour of organised players and online players.
Important to note that HUL now services 15% of its demand digitally, which is a significant advantage (but wasn’t so a few years ago). HUL dominates most categories and has a strong consumer-pull. Overall, we do not expect significant impact on HUL as shops and consumers can easily buy from online and organised players.
Our key thoughts on the issue
* Consumers can easily buy HUL products from so many online players apart from modern trade players such as DMart, Reliance and Star Bazaar.
* Important to note that now HUL services 15% of its demand digitally, which is a significant advantage (but wasn’t so a few years ago).
* This is a recurring issue, and we do not expect a permanent truce on this.
* Distributors want price parity between traditional and organised players. We expect FMCG companies to offer different SKUs to different channels given consumer-buying habits are different. Also cost of operation for distributors and organised players is different, which again leads to this disparity.
* This tussle is a result of a huge loss of market share of organised distributors over the past few years and consumers also shifting to organized channels in a big way.
* Risk: If the fight goes on for a long time, which we think is unlikely as we expect HUL and distributors to come to an agreement soon since both need each other.
Outlook: No major impact; maintain ‘BUY’
In our view, HUL’s EBITDA margins are likely expand both QoQ and YoY in Q3FY22. It is more important to monitor issues such as price hikes, rural slowdown, winter and covid-related restrictions than this issue in Maharashtra. Organised distributors like Jiomart, Metro Cash & Carry, Udaan, etc have a huge runway and ability to keep gaining share. We don’t expect significant impact from this development. We remain positive on HUL's ability to outgrow the market underpinned by distribution and digital expansion, and product innovation initiatives.
Retain ‘BUY/SO’ with a TP of INR2,960. The stock is trading at 50.5x FY23E EPS. Key risk is if this fight goes on for a long time, which we think has a low probability.
To Read Complete Report & Disclaimer Click Here
Please refer disclaimer at https://www.edelweiss.in/disclaimer
SEBI Registration No. INH000000172
Above views are of the author and not of the website kindly read disclaimer
