800% gain and Rs 136 dividend in 11 years: Buy India’s 2nd-largest FMCG stock and earn up to 17%

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Updated: June 7, 2018 4:43:03 PM

We take a look at India's second-largest FMCG stock which has returned better than most of the industry peers and the benchmarks -- Sensex, Nifty, Nifty FMCG. Interestingly, this share has gained more than 800% and the company had given about Rs 136 worth dividend in last 11 years.

Photo for representational purposes only. (Image: Reuters)

FMCG and consumer durable stocks have been one of the favourites fund houses and portfolio managers for many years as the buying behaviour of customers doesn’t tend to change drastically especially with respect to the consumer goods. We take a look at India’s second-largest FMCG stock which has returned better than most of the industry peers and the benchmarks — Sensex, Nifty, Nifty FMCG. Interestingly, this share has gained more than 800% and the company had given about Rs 136 worth dividend in last 11 years.

Shares of the Mumbai-headquartered Hindustan Unilever Ltd (HUL) have risen as much as 816% to Rs 1,571 from a share price level of Rs 171.5 as on 6 March 2007. On a collective basis, the company has extended a dividend of Rs 136.5 in 24 tranches in the corresponding period. The key equity indices such as Sensex and Nifty have grown 227% and 188%, respectively in the same time.

Surprisingly, HUL is the largest FMCG company in India by market capitalisation but in terms of turnover, it is the second-largest FMCG company behind the homegrown FMCG behemoth ITC. As per the latest data available on BSE at 6 June 2018, HUL commands a market capitalisation of Rs 3,40,452.22 crore while ITC has a market capitalisation of Rs 3,30,248.22 crore. Also, both the FMCG giants feature in India’s top five firms by market capitalisation just behind the heavyweights TCS, RIL and HDFC Bank.

Also Read | Who is bigger between ITC and HUL?

The domestic research and brokerage firm Motilal Oswal Securities has given a ‘buy’ with a target price of Rs 1,840 to the stock of HUL. The latest target price implies an upside of 17% from the current market price of Rs 1,571. According to Motilal Oswal Securities, there are four key trends that are particularly relevant for HUL resulting in an elevation in its
earnings growth trajectory compared to the past, namely its rapidly improving adaptability to market requirements, its recognition of Naturals as a key subsegment across categories, continuing strong trend toward premiumization and extensive plans to employ technology.

On a target multiple of 50x Jun’20 EPS (at a 15% premium to three-year average due to significantly improving business
fundamentals), we derive a target price of Rs 1,840, Motilal Oswal Securities said in a report.

Disclaimer: Views and recommendations given in this section are the brokerage firms’ own and do not represent those of www.financialexpress.com. Please consult your financial adviser before taking any position in the stock/s mentioned.

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