We met Sanjiv Mehta, MD & CEO of Hindustan Unilever (HUL). Key takeaways were: (i) Long term opportunity in India remains attractive; (ii) HUL remains agile as the Indian consumer is changing; (iii) the company is focused on bigger and faster innovations like Lever Ayush (did well in most geographies); (iv) categories of the future are growing at 2.5x HUL’s growth rate; and (v) the company is getting future·ready by inculcating a growth mind·set and enriching capabilities. In our view, new launches, clinical validation of Indulekha and pan-India rollout of Ayush along with revival of rural demand are potential triggers. Maintain Hold.
Growth to revive gradually: FMCG per capita consumption is half of Indonesia, one·fourth of China and one·twelfth of Thailand. As such, HUL is turbo-charging growth with agility, increasing penetration in Central India and employing cluster specific mixes. The company is investing in categories of the future, such as male grooming, hair conditioners, fabric conditioners, hand wash and liquid detergents. Through Project Symphony, HUL has already delivered ~7% of sales as savings.
Outlook and valuations: We envisage HUL to be a key beneficiary of anticipated rural recovery and herbal push. We estimate better·than·expected volume growth (trend too indicates the same) and with rural revival in the offing, we retain our target multiple of 47x and arrive at TP of Rs 1,518 on FY20e EPS. Maintain ‘HOLD/SP’ since at CMP stock offers limited upside.