Tuesday, April 14, 2009

Hindustan Lever - Buy

Hindustan Unilever (HUL) implemented price cut of 4-20 per cent on select brands and product categories, either directly (20 per cent price cut on Wheel Active Blue) or indirectly through weight increases (4.2 per cent in Lifebuoy and 6.7-8.3 per cent in Wheel Green). While these are along expectations, total blended price reduction is approximately 1.2 per cent. This translates into net cost saving of Rs 530.1 crore compared to Rs 763.7 crore earlier and additional EBITDA margins of 2.9 per cent versus 4.1 per cent earlier. The move confirms that consumer staple companies will retain some savings to improve margin profile and intensify advertisement activities and utilise the balance for price reductions to benefit consumers.

Despite adjusting the above price actions, HUL has enough safety cushions to introduce further pricing actions (up to 3.1 per cent blended price reduction) and make aggressive spends on advertisement. Should it do so, it will not impact the brokerage’s estimate for FY10 earnings. Earnings forecasts for CY09E remain unchanged at Rs 11.7 per share. The stock trades at 19.6x of its FY09E earnings. Maintain buy.

Smart Investor

BS 12-04-09

Our view :

This is a defensive stock YH = Rs.271 and YL = 185  

Short term : Target Rs.250

Recommended Buying Price = Rs.220

Recommended Selling Price = Rs.250

Long Term : TP = Rs.350 for a 12 months holding period

Bought to you by

Intelligent Investor

Investment Advisory division of

Ravina Consulting



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