Hindustan Unilever – Too much euphoria?

Date: May 22, ’12                  CMP: 424      Mkt Cap 91,900 cr.      PE 33.4

HUL is the bellwether in fast moving consumer goods (FMCG), and its performance indictes the directions for the industry. The current market cap of 91,900 crore ranks it #13 in India.

HUL declared FY12 revenues of 23,247 crores in May, a 21% rise in net profits for the March quarter YoY and strong momentum in sales. Nitin Paranjpe, widely perceived as a strong leader, has been reappointed MD & CEO for another five years.

Lets do a quick analysis of this stock to see where its heading.

Pricing Snapshot

A 5-year view of the share price of HUL shows us:

HUL Price History, JainMatrix Investments

HUL Price History, JainMatrix Investments – Click to enlarge

  • Share price has risen 16% CAGR over the last 5 years.
  • The all time high of 439 occurred recently in May 2012. Today it is within 4% of this peak.

Financial Snapshot

  • Revenues, EBITDA and PAT have gained by 10.2%, 22% and 8% CAGR over 5 years.
  • P/E has moved in a range of 17-33 times. Currently P/E is near its peak.
  • Operating margins are excellent at 27%. Profit margins are flat at 12%.
  • Dividend has increased to 750%, or Rs 7.5, giving a dividend yield of 1.77%.
  • PEG is at 4.18 – indicates overvalued status.
HUL Financials - JainMatrix Investments

HUL Financials – JainMatrix Investments – Click to enlarge

Conclusion

  • HUL share has shot up from 240 to current 424 levels in the last 2 years. Reasons for this:
    • HUL has rebounded from poor results in FY10.
    • After posting good results for FY12, HUL has appreciated a lot this month.
    • HUL is considered a defensive stock, and is popular in the current bearish markets.
  • Today it is at its upper end of the valuation range. However the profit growth rates cannot support this valuation for long.
  • The fundamentals indicate that HUL is today an overpriced stock. Investors need to exit at these levels.

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Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

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