Nomura initiates coverage on HUL with 'BUY' rating

Nomura has initiated coverage on FMCG major Hindustan Unilever with a buy rating and a target price of Rs 2,680. According to Nomura, the downturn is the time for Hindustan Unilever and leverage its core strengths to its fullest.

"We believe in this downturn HUL can further widen its competitive lead vs peers and is well-equipped to drive share gains and expand margins. We forecast FY20-23F EPS CAGR of 15% (supported by GSK CH merger)," said Nomura.

Nomura said HUL has increased its focus on protecting volumes during the current downturn.

It has gained share in 86% of its portfolio in the June quarter and is consistently doing so, which should enable it to gain value share faster than peers over the next five years, said Nomura.

Nomura said the company has started gaining market share in soaps where it was losing share, and this could meaningfully contribute to its sales.

The company has introduced new categories like laundry sanitizers, anti-germ wash booster and disinfectant sprays or wipes, and is developing markets even in tough times, said Nomura. The company is also recalibrating to save costs sustainably.

Nomura values Hindustan Unilever at 65 times on FY22 estimated earnings per share which is at a 15% premium to its past three-year average multiple, as it expects strong margin expansion, high cash flow generation and high earnings visibility.