Hindustan Unilever (HUL) held a session recently regarding the company’s transition to the new Indian Accounting Standards (IND AS) and the preliminary impact on its financial statements. We also had a chance to interact with the management, the key takeaways of which are detailed below.

Competitive intensity never stabilises
* A large number of new entrants were noticed in the Soaps and Detergents (S&D) space last year after the input prices had declined. Though the company acknowledged this fact, it said that these small players (the term it uses to refer to them is ‘mushroom players’) keep coming and going and that it would not be losing too much sleep over the same.
* When asked about the newest player in the market, Patanjali, the management mentioned that the company has done well so far, but then it has launched a slew of products across categories and each new launch does see initial success. The test would be to sustain this growth consistently over a long period of time. We too feel that these are early days and the key challenge would be how it manages the breadth of the portfolio. Our historical analysis says that both breadth and depth are usually difficult to attain simultaneously.

HUL’s pricing strategy
* HUL’s pricing strategy is based on the prices of its input commodities as well as the behaviour of the competition around it. Essentially, in an ideal scenario, it would target a modest improvement in Ebitda margins driven by inflation-led pricing, stable volume growth and cost savings.
* Over the last quarter, the company took a price hike in half of its portfolio (Personal Products), while taking a price cut in the other half (Soaps & Detergents). This price cut was taken to ensure that it maintains relative competitiveness. These are the categories where the company is less sensitive to prices and prefers to choose volume growth due to innovation.
* Its recent price hikes in detergents were based on its brand positioning and strength, whereas its pricing strategy in its personal products portfolio is largely based on providing value to the consumer.

HUL’s focus areas
* The management believes that Central India is growing at a faster rate than the rest of the country, due to which the company has a heightened focus on the region with a full team based in Lucknow. It is looking at market development in this region.
* Apart from innovation, the company plans to use 20% of its funds for market development. Category wise, the company wants to explore dishwashing liquids and fabric conditioners in the home care space, conditioners in the hair care space, higher order benefits products in the skin care space and soups and premium ice cream in the food space.
* The company mentioned that there is a huge level of interest in natural products both in domestic and foreign markets, due to which there is a need for the company to strengthen this part of its portfolio. It is already working towards the resurrection of its brand ‘Ayush’ and more initiatives are under way.

On Q3FY16
* The company mentioned that the recent floods in Tamil Nadu have been a disruption to its business, as a chunk of its demand comes from this region. However, it has ensured that it makes efforts to help alleviate the suffering and is providing whatever assistance it can.
* The company also admitted to winter being delayed this year, but is hopeful of the season starting soon. However, the company believes that it is somewhat resilient to these seasonal trends given the width and depth of its portfolio.

Going forward

* The company mentioned that it was too early for it to comment on the recent updates on the proposed GST or the 7th Pay Commission recommendations. However, overall, it views the implementation of GST to be positive for the industry as it will become a level playing field with less tax evasion and increase in efficiencies. If the final implementation is beneficial to the company, it will look to achieve a modest improvement in margins and then focus on market development with the funds.
* Regarding rural growth, the company admits that the pace of growth has slowed to the rate of urban growth, but the market is still growing. It equates rural consumers to consumers in tier-III cities, with most needs being aspirational.
* Regarding its portfolio in oral care, the management is still not satisfied with the performance of Pepsodent and is still working on improving the same.

Nomura’s view

Overall, we were satisfied with the management’s continued focus on premiumisation and its strategy towards its personal products portfolio. We continue to wait to see the corrective actions that the company takes in its oral care portfolio. While the near-term challenges remain for most consumer companies with a slowdown in consumption, we remain positive on HUL given its superior product portfolio, expansive distribution reach and management bandwidth. Maintain Buy with a TP (target price) of Rs 1,020.

Sebi has ordered attachment of at least 17 immovable properties and movable assets to recover over Rs 5.76 crore dues from Sun Plant Business and its three directors in a case related to illegal fund raising.

Most of the properties are in West Bengal.

Recovery proceedings have been initiated against Sun Plant Business, its directors/promoters — Basant Kumar Sasmal, Amit Kumar Chowdhury and Mahesh Chandra Prasad — for their failure to pay Rs 5.76 crore along with the money collected from investors till June 3, 2015, Sebi’s Recovery Officer Manjesh S Roy said in an order.

On October 28, notices were issued to the defaulters demanding them to pay the dues. However, the defaulters failed to pay the dues and did not respond to the notices, the order said.

“The funds available in the bank accounts and the securities available in the demat accounts of the defaulters are not sufficient for recovery of the dues,” it added.

The regulator has prohibited the entities from taking any benefit by way of disposal, transfer, alienation or charge in respect of the properties. They have also been asked to provide full details of all their movable and immovable properties.

Sebi has powers to attach properties and bank accounts, among other things, of persons and entities that have failed to comply with directions involving payment of penalties and other dues.

This week Sensex and Nifty fell 593.68 points and 171.45 points to 25,044.43 and 7,610.45, respectively. (Reuters)

Lingering concerns over the passage of GST Bill in the ongoing Parliament’s winter session and factors such as interest rate hike worries by the US Federal Reserve next week, falling commodity prices, funds outflow by foreign institutional investors and bleak global cues dragged the key benchmark indices over 2 per cent down for the week ended December 11. This week Sensex and Nifty fell 593.68 points and 171.45 points to 25,044.43 and 7,610.45, respectively.

During the week, Cairn India (down 9.80 per cent), Punjab National Bank (down 8.60 per cent), Vedanta (down 8.50 per cent), Coal India (down 8.20 per cent) and YES Bank (down 7.60 per cent) slid the most in the Nifty pack.

Share price of Asian Paints, Tata Consultancy Services and NTPC advanced 2.70 per cent, 2.40 per cent and 1.80 per cent, respectively, during the week.

Barring the BSE IT index (up 0.54 per cent), rest all other sectoral indices settled the week in red. The BSE Metal index and BSE Realty index fell the most — 5.18 per cent each during the week. It was followed by BSE Auto index (down 3.56 per cent), BSE Capital Goods index (down 3.40 per cent), BSE Oil & Gas index (down 3.17 per cent) and BSE Power index (down 2.80 per cent).

Gaurav Jain, director, Hem Securities, said, “Sharp selling pressure across the world markets ahead of US Fed policy, continued fall in commodity prices worldwide raising concerns over global slowdown, continued selling pressure by foreign portfolio investors, logjam of winter session of Parliament, losing hopes of passage of GST Bill and weakening of rupee against dollar has butchered the indices during the week.”

According to the website of NSDL, foreign institutional investors or foreign portfolio investors remained net sellers in the equity market segment as they sold shares of worth Rs 3,124.31 crore this week.

IPOs of Dr Lal PathLabs and Alkem Laboratories got an overwhelming response during the week and were oversubscribed by 33 and 44 times, respectively. Jimeet Modi, chief executive officer, SAMCO Securities, said, “Vibrant primary markets are an indication that the underlying mood is positive though the secondary market is just dragging its feet in a negative vicious circle waiting for a positive spark to re-start the upward journey.”

Among the major events of the week, the Cabinet cleared the Real Estate Regulatory Bill 2015 giving far reaching rights and redressals to the consumers thus ending decades of builders’ dominance thereby creating an equitable platform for orderly growth of the entire real estate sector in the country.

The Reserve Bank of India said it is expecting the US Federal Reserve to raise rates next week by 25 basis points and it is prepared to meet any eventuality arising out of the decision. “The Fed has prepared the ground and we are expecting that it will raise rates anywhere between one and 25 basis points,” RBI governor Raghuram Rajan said after the central bank’s board meeting on Friday.

Essar Oil came out with a delisting offer with a floor price of Rs 146 giving an opportunity to the minority shareholders to exit at the discovered price which could be in the vicinity of the current market price.

GST panel finally suggested the rate of 18 per cent for a more fair and equitable tax incidence rate, clearing an important hurdle for passage of the Bill in the Parliament.

The Fed forward rate curves are now suggesting a 75 per cent probability of a move on the rates. The US Federal Reserve Chief, Janet Yellen said that she was looking forward to a US interest rate hike, which would signal to the world that the US has finally recovered from recession. “Concerns over a Fed rate hike have led to a selloff in risk assets over the last few weeks, with FIIs selling Indian equities worth $1.5 billion in the previous month. Volatility is expected to increase as we move towards the Fed’s December 16th policy meeting,” said Brijesh Ved, senior portfolio manager, equities, BNP Paribas Mutual Fund.

Even as calendar year 2015 may have been the best in five years for initial share sale, a large portion of fund-raising was towards giving an exit to existing shareholders or repaying debt, and very little quantum was used as growth capital or business expansion.

Of the total R13,145 crore that Indian companies have raised through initial public offerings (IPOs) so far in 2015, nearly R6,700 crore was raised by promoters and private equity (PE) players through market sale, stock exchange data showed.  An additional 20-25% of the quantum is towards repayment of debt.

“There was no traction in primary markets in the last two to three years and PE firms have got a chance to exit the companies after a long time. Further, in some smaller issues, promoters had deliberately sold a part to make the issue bigger,” said Prithvi Haldea, chairman of Prime Database.

Sebi tweaked IPO rules last year, whereby companies with after IPO market capitalisation of less than R 4,000 crore are required to either dilute 25% or R400 crore of the issue, whichever lower.

Companies with post IPO market capitalisation of more than R4,000 crore are required to dilute only 10%, and would have an additional time frame of three years to achieve minimum public shareholding of 25%.

The last four public issues, where companies raised close to R5,514 crore, more than 70% of the money was towards secondary market sale. InterGlobe Aviation —  the biggest IPO since December 2012  — raised R 3,018.2 crore from the primary markets. Of the total portion, amount of fresh issue was only R1,272 crore, while rest of the money was mopped up to provide partial exit to promoters and promoter group, data showed.

Most recent entrants into the successful IPO list – Alkem Laboratories and Dr Lal PathLabs – were completely OFS issues as companies did not raise any money for their business requirement. The value of both the IPOs is around R2,000 crore.

Satyen Shah, executive VP and head – ECM, Edelweiss Investment Banking, said that 2015 was a mixed bag for IPO markets with issues like Alkem Laboratories and Dr Lal were completely secondary market sale, whereas issues like Coffee Day Enterprises (CDE) were completely fresh issues.

“2015 was a fairly good year for primary markets. Many a times offer for sale component was there to meet with the regulatory requirements of minimum offer size or to ensure that there was adequate float in the offering,” Shah explained.

CDE tapped primary markets in October to raise R1,150 crore. Although the complete offering was a fresh issue, CDEL planned to use R638.2 crore of the total money raised to repay existing loans, according to information made available in the regulatory filing.

Initiate coverage on InterGlobe Aviation with ‘buy’ rating Despite our 44% earnings CAGR through FY18, we assign lower FY17e target P/E multiple of 17x (10% premium to comparable global LCC player RyanAir) owing to high earnings sensitivity to oil prices to arrive at a fair value of R1,478 (an upside of 48%).

At our target price, implied FY17e EV/ebitdaR stands at 9.7x (v/s 9.6x for RyanAir). On FY17e, the stock currently trades at 11.5x EPS and adjusted EV/ebitdaR of 7.4x with an implied dividend yield of >4%.

In our estimates through FY18, we model a) fleet size growth from 94 in FY15 to 154 in FY18 and b) load factor (seat utilization) moving from 80% in FY15 to 84% in FY18.

Despite double-digit passenger CAGR of 12% over the last two decades, the Indian aviation sector is significantly under penetrated-per capita seats at 0.08 v/s 2.6/1.6 in the US/Canada and average of 0.5 in Brazil, Thailand, Indonesia and China. However, India is set to become the 3rd largest aviation market by 2030, driven by a) value migration from rail to air, b) increasing per capita GDP and disposable income, c) growing tourism and d) favorable aviation policy. Compared with the passenger growth estimate of 13% CAGR through FY20, YTD growth has been very robust at 20% (v/s last 5-/10-year CAGR of 9%/13%)-supported by lower ticket prices owing to benign oil prices.