Equity Research Report Hul

EQUITY RESEARCH REPORT (HUL) FMCG SECTOR INDIA OUTLOOK The burgeoning middle discriminate Indian population, as well as the rural celestial sphere, present a huge potential for this sector. The FMCG sector in India is at present, the fourth largest sector with a total market size in excess of USD 13 billion as of 2012. This sector is anticipate to grow to a USD 33 billion persistence by 2015 and to a whooping USD 100 billion by the year 2025. This sector is characterized by strong MNC presence and a well established diffusion network. In India the easy availability of raw materials as well as cheap labour makes it an ideal destination for this sector.There is also intense competition between the no(prenominal)ionized and unorganised segments and the fight to keep operational costs low. CHALLENGES TO FMCG SECTOR * Increasing rate of inflation, which is likely to lead to higher cost of raw materials. * The standardization of promotion norms that is likely to be implemented by th e Government by Jan 2013 is expected to increase cost of beverages, cereals, edible oil, detergent, flour, salt, aerated drinks and mineral water. * Steadily wage hike send away costs, leading to increased distribution costs. The present slow-down in the economy may lower demand of FMCG products, particularly in the premium sector, leading to reduced volumes. * The declining judge 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 DRIVING FACTOR * Increasing rate of urbanization, expected to see major offset in coming years. * Rise in disposable incomes, resulting in premium brands having faster out reaping 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. * Investment in store m arkets of FMCG companies, which are expected to grow constantly. This sector will continue to see growth as it depends on an ever-increasing internal market for consumption, and demand for these goods remains more or less constant, irrespective of fadeout or inflation. Hence this sector will grow, though it may not be a smooth growth path, due to the present world-wide economic 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 conduct FOR FMCG SECTOR Confidence of consumer product makers is waning as a delayedmonsoonand lingering weakness in the economy threaten 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 sustained highinflationand a hold-up in monsoon could prompt buyers to ti ghten purse strings. While the high-end, super-premium segment does not get squeeze 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 realistic juices and Vatika shampoo. ABOUT 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 victimization its products. Seventeen of HULs brands featured in theACNielsenBrand Equity list of 100 Most Trusted Brands Annual Survey (2011).The company also happens to go 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 LOWEST AMONG THE EMERGING ASIAN COUNTRIES HUL RATIOS RATIO 2012 2011 2010 2009 2008 Current Ratio 0 . 8954 0. 9000 0. 81268 0. 9834 0. 65823 Quick Ratio 0. 4978 0. 4711 0. 48604 0. 5436 0. 27253 Cash Flow fluidness ratio 0. 6038 0. 5519 0. 80573 0. 6679 0. 38392 Average Collection Period 13. 343 17. 560 14. 0918 10. 01 12. 2710 Days broth 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 turnover 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 engaged 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 exonerate Profit Ratio 11. 947 11. 520 12. 2033 12. 268 13. 8754 Return on Investments 59. 5 09 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 comparison s. no. Name Market capitalisation Sales turnover Net 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 bullion Total Share Capital 216. 15 215. 95 218. 17 217. 99 Equity Share Capital 216. 15 215. 95 218. 17 217. 99 217. 75 Share Application M oney 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 Block 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 Sundry Debtors 678. 99 943. 20 678. 44 536. 89 443. 37 Cash and Bank 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 Credit 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 render 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 CAPITAL ASSET PRICING METHOD 1. REQUIRED RATE OF RETURN = Risk free return +? (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. CONSTANT 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 cash flows =(1. 69*1. 51*. 54)1/3 -1 = . 1128 =11. 28% Assuming the ab ordinary 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 cr ore 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 current 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 advised to sell the share and enjoy the profits proceeding of stock in last 1 year