Hindustan Unilever –Hold- Sharekhan
P&G has increased the grammage of Tide Natural by 25% to 500gm keeping the price unchanged at Rs20 per 500gm (indicating a price reduction of 20.1%). The company is also likely to increase the grammage of Tide by 25% to 625gm from 500gm currently (indicating a price decline of 20.0%).
We believe this is in response to the severe pricing action undertaken by Hindustan Unilever Ltd (HUL) across its portfolio recently to further improve its volume growth and consequently its market share in the detergent category.
The soaps and detergent segment contributes nearly 50% to the company’s top line. With the competition intensifying in the detergent category and subdued volume growth in the soaps category, we expect HUL to post a subdued performance in FY2011.
During the more aggressive price war of 2004, the bottom line had declined significantly by 31.4% year-on-year (y-o-y) and the stock price had corrected significantly and was trading at close to 20x its one-year forward earnings. Thus, to reflect the higher risk and lower earnings growth, we reduce our exit multiple from 23x to 20x and revise our price target to Rs243 (based on 20x its average earnings of FY2011 and FY2012). We also downgrade our recommendation on the stock from buy to HOLD.
Popularity: 5% [?]
Category: Broker tips
Subscribe
If you enjoyed this article, subscribe to receive more just like it.
