Buy rating on Hindustan Unilever; Not fretting over Patanjali yet

Hindustan Unilever (HUL) held a session recently regarding the company’s transition to the new Indian Accounting Standards (IND AS) and the preliminary impact on its financial statements. We also had a chance to interact with the management, the key takeaways of which are detailed below.

Competitive intensity never stabilises
* A large number of new entrants were noticed in the Soaps and Detergents (S&D) space last year after the input prices had declined. Though the company acknowledged this fact, it said that these small players (the term it uses to refer to them is ‘mushroom players’) keep coming and going and that it would not be losing too much sleep over the same.
* When asked about the newest player in the market, Patanjali, the management mentioned that the company has done well so far, but then it has launched a slew of products across categories and each new launch does see initial success. The test would be to sustain this growth consistently over a long period of time. We too feel that these are early days and the key challenge would be how it manages the breadth of the portfolio. Our historical analysis says that both breadth and depth are usually difficult to attain simultaneously.

Overall, we were satisfied with the management’s continued focus on premiumisation and its strategy towards its personal products portfolio. We continue to wait to see the corrective actions that the company takes in its oral care portfolio. While the near-term challenges remain for most consumer companies with a slowdown in consumption, we remain positive on HUL given its superior product portfolio, expansive distribution reach and management bandwidth. Maintain Buy with a TP (target price) of Rs 1,020.

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.