Equity Research Report Hul

EQUITY RESEARCH REPORT (HUL) FMCG sphere INDIA OUTLOOK The burgeoning middle class Indian population, as well as the rural sector, present a huge potential for this sector. The FMCG sector in India is at present, the fourth largest sector with a total mart surface in excess of USD 13 billion as of 2012. This sector is pass judgment to grow to a USD 33 billion industry by 2015 and to a whooping USD 100 billion by the year 2025. This sector is characterized by rugged MNC presence and a well established distribution ne 2rk. In India the leisurely availability of raw materials as well as cheap roil makes it an ideal destination for this sector.There is as well as intense competition between the unionized and u noneganised segments and the fight to keep subprogramal costs low. CHALLENGES TO FMCG SECTOR * increase rate of inflation, which is likely to lead to higher cost of raw materials. * The standardization of packaging norms that is likely to be implemented by the G all overnm ent by Jan 2013 is expected to increase cost of beverages, cereals, edible oil, detergent, flour, salt, aerated drinks and mineral water. * steadily rising fuel costs, stellar(a) to increased distribution costs. The present slow-down in the economy may lower make of FMCG products, particularly in the superior sector, leading to humbled volumes. * The declining value of rupee against other currencies may reduce margins of many companies, as Marico, Godrej Consumer Products, Colgate, Dabur, etc who import raw materials. HIGH GROWTH whimsical FACTOR * Increasing rate of urbanization, expected to see major step-up in coming years. * Rise in disposable incomes, resulting in reward brands having faster harvest-time and deeper penetration. * Innovative and stronger channels of distribution to the rural segment, leading to deeper penetration into this segment. Increase in rural non-agricultural income and benefits from government welfare programmes. * investiture in line markets of FMCG companies, which are expected to grow constantly. This sector go forth continue to see harvest-home as it depends on an ever-increasing internal market for consumption, and entreat for these franks bear ons more or less constant, irrespective of receding or inflation. Hence this sector will grow, though it may non be a smooth process path, due to the present world-wide frugalal slowdown, rising inflation and fall of the rupee.This sector will see good growth in the long run and hiring will continue to remain robust DEMAND FOR FMCG SECTOR Confidence of consumer product makers is waning as a delayedmonsoonand lingering weakness in the economy be to subdue revenue growth for the sector in the next two quarters. Several marketers, including Dabur, Marico,Godrej Consumer Products Ltd(GCPL),ITCandEmami, fear pressure on premium products and rural demand two important growth drivers in the coming months as carry on highinflationand a hold-up in monsoon could prompt bu yers to tighten travelling bag strings. While the high-end, super-premium segment does non get impacted by inflation, demand in the mass premium segment could contract if overall economic sentiment does not improve, said Sunil Duggal, CEO ofDabur India, the maker of Real juices and Vatika shampoo. approximately HUL HUL is the market leader in Indian consumer products with presence in over 20 consumer categories such as soaps, tea, detergents and shampoos amongst others with over 700 million Indian consumers use its products. Seventeen of HULs brands featured in theACNielsenBrand uprightness inclining of 100 Most Trusted Brands Annual Survey (2011).The attach to also happens to have the highest number of brands in this list, with six brands featuring in the top 15 list. The company has a distribution channel of 6. 3 million outlets and owns 35 major Indian brands. Its brands include LABOR COST IN INDIA IS THE worst AMONG THE EMERGING ASIAN COUNTRIES HUL RATIOS RATIO 2012 2011 2010 2009 2008 catamenia proportion 0. 8954 0. 9000 0. 81268 0. 9834 0. 65823 Quick Ratio 0. 4978 0. 4711 0. 48604 0. 5436 0. 27253 Cash Flow Liquidity ratio 0. 6038 0. 5519 0. 80573 0. 6679 0. 38392 Average Collection stage 13. 343 17. 560 14. 0918 10. 01 12. 2710 Days Inventory Held 48. 957 59. 526 53. 1215 51. 365 60. 4530 Days Payable Outstanding 73. 481 81. 979 104. 886 66. 724 87. 8556 Account receivable overthrow 27. 355 20. 785 25. 9014 36. 494 29. 7448 Accounts Payable Turnover 3. 6017 3. 0947 2. 43856 3. 9712 3. 01573 Inventory Turnover 5. 4059 4. 2619 4. 81485 5. 1589 4. 38272 Fixed assets turnover 10. 36 9. 01 8. 01 12. 34 8. 87 Total Assets Turnover 4. 9807 5. 4970 6. 59332 7. 9313 8. 55871 Debt Ratio 0 0 0. 00402 0. 1683 0. 06321 LONG TERM DEBT TO CAPITAL EMPLOYED 0 0 0. 00402 0. 683 0. 06321 gross profit ratio 16. 449 40. 107 41. 4842 49. 423 51. 688 Operating Profit Ratio 16. 456 15. 911 16. 8758 15. 909 18. 0540 clear Profit Ratio 11. 947 11. 520 12. 2033 12. 26 8 13. 8754 Return on Investments 59. 509 63. 326 80. 4618 97. 307 118. 755 Return on Equity 76. 068 84. 339 81. 1040 117. 42 127. 232 Cash Return on Assets 0. 4351 0. 5281 1. 29341 0. 7963 1. 07195 Price to Earning 18. 569 26. 227 30. 0113 37. 728 56. 8245 Peer likeness s. no. Name Market capitalisation Sales turnover utmost profit Total assets 1 GODREJ 22933. 3 2980. 08 604. 39 2761. 43 2 DABUR 22448. 83 3759. 33 463. 24 1576. 54 3 MARICO 13361. 56 2970. 30 336. 58 1677. 27 4 EMAMI 9101. 40 1389. 82 256. 81 804. 23 5 P&G 8103. 50 1297. 41 181. 29 600. 62 6 GILLETTE 7130. 13 1232. 90 75. 73 600. 33 7 JYOTHY LABS 2860. 82 662. 97 83. 52 1226. 42 8 BAJAJ CORP. 2926. 40 473. 31 120. 09 427. 86 9 HUL 118139 22116. 37 2691. 40 3512. 93 BALANCE SHEET OF HUL - in Rs. Cr. - Mar 12 Mar 11 Mar 10 Mar 09 Dec 07 12 mths 12 mths 12 mths 15 mths 12 mths Sources Of Funds Total Share chief city 216. 15 215. 95 218. 17 217. 99 Equity Share neat 216. 15 215. 95 218. 17 217. 99 217. 75 Share screening Money 0. 00 0. 00 0. 00 0. 00 0. 00 Preference Share Capital 0. 00 0. 00 0. 00 0. 00 Reserves 3,296. 11 2,417. 30 2,364. 68 1,842. 85 217. 75 Revaluation Reserves 0. 67 0. 67 0. 67 0. 67 0. 67 Networth 3,512. 93 2,633. 92 2,583. 52 2,061. 51 1,439. 24 Secured Loans 0. 00 0. 00 0. 00 144. 65 25. 2 Unsecured Loans 0. 00 0. 00 0. 00 277. 30 63. 01 Total Debt 0. 00 0. 00 0. 00 421. 95 88. 53 Total Liabilities 3,512. 93 2,633. 92 2,583. 52 2,483. 46 1,527. 77 Mar 12 Mar 11 Mar 10 Mar 09 Dec 07 12 mths 12 mths 12 mths 15 mths 12 mths Application Of Funds Gross obstruct 3,574. 67 3,759. 62 3,581. 96 2,881. 73 2,669. 08 Less Accum. Depreciation 1,416. 88 1,590. 46 1,419. 85 1,274. 95 1,146. 57 Net Block 2,157. 79 2,169. 16 2,162. 11 1,606. 8 1,522. 51 Capital Work in Progress 210. 89 299. 08 273. 96 472. 07 185. 64 Investments 2,438. 21 1,260. 68 1,264. 08 332. 62 1,440. 81 Inventories 2,516. 65 2,811. 26 2,179. 93 2,528. 86 1,953. 60 miscellaneous Debtors 678. 99 943. 20 678. 44 536. 89 443. 37 Cash and vernacular Balance 510. 05 281. 91 231. 37 190. 59 200. 11 Total Current Assets 3,705. 69 4,036. 37 3,089. 74 3,256. 34 2,597. 08 Loans and Advances 1,314. 72 1,099. 72 1,068. 31 1,196. 95 1,083. 28 Fixed Deposits 1,319. 9 1,358. 10 1,660. 84 1,586. 76 0. 75 Total CA, Loans & Advances 6,340. 40 6,494. 19 5,818. 89 6,040. 05 3,681. 11 Deffered source 0. 00 0. 00 0. 00 0. 00 0. 00 Current Liabilities 5,688. 44 6,264. 21 5,493. 97 4,440. 08 4,028. 41 nutriment 1,945. 92 1,324. 98 1,441. 55 1,527. 98 1,273. 90 Total CL & Provisions 7,634. 36 7,589. 19 6,935. 52 5,968. 06 5,302. 31 Net Current Assets -1,293. 96 -1,095. 00 -1,116. 63 71. 99 -1,621. 20 Miscellaneous Expenses 0. 00 0. 00 0. 00 0. 0 0. 00 Total Assets 3,512. 93 2,633. 92 2,583. 52 2,483. 46 1,527. 76 CAPITA L ASSET determine METHOD 1. REQUIRED RATE OF RETURN = Risk free stop +? (Risk premium) Ri = Rf + ? (Rm Rf) = 8. 1 +0. 27 (6. 5) Ri = 9. 855% 2. ZERO GROWTH MODEL Where, dividend = Rs. 7. 5 Po = d/r = 7. 5/9. 855% Po = 76. 10 3. eonian GROWTH MODEL (GORDON MODEL) PO = DO(1+g) r-g d1 r-g Where , growth rate = historical growth of average dividend paid of last 5 years g = 6. 75% = 7. 5(1+6. 75%) (9. 855-6. 75)% PO = 258. 266 4. Implicit growth P0 = d1 R g Where, po = 534. 25, d1=8. 006 , r= 9. 855% P0 = d1 R g 534. 25= 8. 006/ (0. 098-g) G= 0. 083 or 8. 3% Cash flow model Ri = 9. 855% Calculation of growth rate of immediate payment flows =(1. 69*1. 51*. 54)1/3 -1 = . 1128 =11. 28% Assuming the abnormal growth of (11. 8%) is for 2 years, and after this the company is back to normal growth trajectory of 6% growth rate Cash flow from operation = 2884. 24 crore Vc = 2884. 24(1+. 1128)/(1+. 09) + 2884. 24(1+. 1128)2/(1+. 09)2 + 2884. 24(1+. 1128)2(1+. 06) (9. 855-6)% (1. 09)2 Vc = 88605 Vp = 0 Vd = 1000 Therefore, Ve = Vc Vp Vd = 88605-1000 = 85605 crore Total no. of shares outstanding = 216. 15 crore Po = Ve Total no. of shares outstanding = 85605/216. 15 Po = 396. 04 MULTIPLE MODEL p/e of company=32. 95 p/e of industry = 44. 0 price of companys share = 534. 25 earnings for the companys stock = price of co. stock p/e of the co. =534. 25/32. 95 Earnings for the companys stock = 16. 21 Po = Earnings of company*P/E of industry =16. 21*44. 50 Po = 721. 345 Analysis The menstruum market price of the stock is Rs.. 534. 25 , as per the valuation of stock under distinct method , it is assessed that the stock is overvalued therefore new buyers should not invest at this point, whereas, those who are invested in share are hash out to sell the share and enjoy the profits Performance of stock in last 1 year