Hindustan Unilever - Monetizing on its assets - Reliance Securities

Event: HUL and entities of Piramal Realty (Ajay Piramal Group) have signed an agreement for sale of the Worli Sea face property, 'Gulita' for a consideration value of Rs452.5cr. The consideration includes both fixed and variable components. Gulita, which was constructed in 1986, was put on sale soon after the FMCG giant moved its training centre to suburban Andheri. The company had been trying to sell the property for nearly two years and had even advertised to give lessees in the building the option of buying it after three years.

Our take on the deal: We estimate a post tax extraordinary income of ~Rs375-400cr to be recorded in FY2013E, which equates to a cash of ~Rs2 per share.

We roll over to FY2014E: HUL is focusing on its Foods business (includes beverages, packaged foods and ice cream businesses), which is apparent from the aggressive advertisements and a slew of new product launches in this category under the brands Kissan, Brooke Bond, Kwality Walls, Modern and Taj Mahal. Moreover, higher brand investments in the personal product categories (includes shampoos- HUL holds ~43% of the market share in shampoos. The estimated size of shampoos market is ~Rs1,720cr) and re-positioning its brands in the premium segment is expected to garner well for the revenue growth going ahead despite sluggishness in the Soaps and Detergent (S&D) category.

Outlook and Valuation

Sustainable volume growth and steady performance of personal products and foods business renders our confidence on the company's growth prospects. We believe, the company's improved segment margin performance supported by rationalized adspends across its segments, especially in the S&D category is a tailwind for the stock performance going ahead. Over FY2012-14E we factor CAGR of 16.4%, 21.5% and 23.3% in top-line, EBITDA and recurring PAT respectively. We recommend an Accumulate on HUL with a Target Price of Rs466.

Risks to the view

Lower than anticipated volume growth on account of price wars will impact our estimates

Slowdown in the economy and high inflationary environment will impact our estimates.

Source : Equity Bulls

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