Reiterate ‘buy’ on Hindustan Unilever (HUL) with a target price of Rs 1,020 per share. We remain positive on HUL given its superior product portfolio, expansive distribution reach and management bandwidth. We value HUL at 40x one-year-forward earnings estimate of Rs 25.2 – in line with the company’s two-year average multiple.
HUL announced signing up of an agreement with Mosons Group to acquire its flagship brand ‘Indulekha’ for a consideration of Rs 330 crore. It seems that the company has been in talks with Mosons Group since June this year, with the agreement finally being signed today. Earlier this year, Emami also strengthened its position in the ayurvedic hair oil business by acquiring the Kesh King brand.
Indulekha was first launched in 2009 as a premium ayurvedic hair oil. Compared to other ayurvedic hair oils in the market, Indulekha is the most expensive oil available currently. The brand has a strong presence in Kerala, Tamil Nadu and Karnataka and has recently forayed into Maharashtra. For FY15, the brand had a turnover of Rs 1 billion and ebitda margins of ~30%.
We view Indulekha acquisition as small but strategically in the right direction. For FY15, the Indulekha brand’s revenues would equate to 0.3% of HUL’s overall revenues and its ebitda 0.6% of HUL’s operating profit.
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