HUL at record high, nudges mcap of entire Nifty Smallcap Index

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Published: February 13, 2020 1:30:29 AM

HUL has been a stellar performer, with the stock generating a CAGR of 25% over the past 10 years as investors continue to reward its outstanding earnings growth with an equal and reciprocal growth in re-rating.

As on Wednesday, the market capitalisation of HUL stood at Rs 4.89 lakh crore, which is Rs 19,344 crore shy of the Nifty Smallcap Index’ market cap.As on Wednesday, the market capitalisation of HUL stood at Rs 4.89 lakh crore, which is Rs 19,344 crore shy of the Nifty Smallcap Index’ market cap.

The market capitalisation of FMCG major Hindustan Unilever (HUL) is nudging the market cap of the entire Nifty Smallcap Index, thanks to the selective rally in the Indian market over the last two years that has ignored the broader market.

Shares of HUL surged 5% on Wednesday to hit a record high of Rs 2,260.35 on the NSE as investors weighed the benefits from the proposed merger with GlaxoSmithKline Consumer Healthcare (GSKCH). As on Wednesday, the market capitalisation of HUL stood at Rs 4.89 lakh crore, which is Rs 19,344 crore shy of the Nifty Smallcap Index’ market cap.

While the stock of HUL has rallied 17.5% since the beginning of 2020, the Nifty has added just 0.3%. The Nifty Smallcap Index gained 5.9% during the same period.

Interestingly, the country’s fourth-largest company by market cap has already surpassed the combined market cap of many sectoral indices like Nifty Pharma, Nifty PSU Bank and Nifty Realty, among others.

The pharma sector, which has been grappling with pricing pressure led by consolidation of supply chain in the US market and increased regulatory scrutiny, has lost about 40% from its 2015 peak, resulting in the number of pharma companies in the Nifty50 basket coming down to three from five stocks two years ago.

HUL has been a stellar performer, with the stock generating a CAGR of 25% over the past 10 years as investors continue to reward its outstanding earnings growth with an equal and reciprocal growth in re-rating.

Motilal Oswal Financial Services which has a ‘buy’ rating on HUL, believes from a near-term perspective, favorable base in the next few quarters, expected recovery in the demand environment from Q2FY21, synergies from the GSKCH merger, price increase in soaps and lower crude costs are likely to boost earnings.

“Taking into account the best RoEs among consumer peers, we believe that the stupendous wealth generation track record of HUL is likely to continue. We raise our target multiple to 50x FY22E EPS on the merged numbers, resulting in our target price changing to Rs 2,490 per share,” the domestic brokerage said.

HUL said in notes to its Q3 results that the merger with GlaxoSmithKline Consumer Healthcare was approved by the boards of both the companies, and is awaiting requisite regulatory and other approvals.

JPMorgan observes that given a consistent beat on margins, there is more confidence in HUL’s ability to continue to deliver margin expansion (despite moderate top line growth) which should support healthy EPS growth. “There is scope for significant top line and bottom line synergies from the GSK Consumer merger,” the brokerage said in a note after Q3 results.

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