- Investors on Dalal Road, who are becoming increasingly risk-averse, have raised the valuation premium of Hindustan Unilever (HUL) to a record high.
Investors on Dalal Road, who are becoming increasingly risk-averse, have raised the valuation premium of Hindustan Unilever (HUL) to a record high. The price-to-earnings (P / E) multiple of the FMCG business is now nearly twice that of its peers in the industry — the highest in 17 years. HUL is now priced at almost 77x its trailing 12-month net profit at its current market capitalization of Rs 5.18 trillion, against the industry’s average P / E of 43x. Its price advantage over the market is approximately 6x its historical average of about 570 bps at about 3,300 base points (bps). A one-hundredth of a percent base point
The measurement of the Industry Norm is based on the end of the financial year and the existing P / E multiples by sales of the top 20 consumer goods producers. In addition to HUL, there are ITC, Nestlé, Asian Paints, Godrej Consumer Goods, Marico, Dabur India, Colgate-Palmolive, P&G Hygiene, Britannia Industries, Pidilite Industries, Tata Food, Berger Paints, Emami, and Gillette India among others.
Analysts attribute the prime value of HUL to its relatively faster post-demonetization earnings growth and superior capital performance. “Since demonetization, operating and net profits at HUL have risen in double digits. This has made it one of the top options for investors looking at a pie of Indian market tale, “says Systematix Group head Dhananjay Sinha. For example, net sales of HUL have increased at a compound annual growth rate (CAGR) of 5.7 percent over the last three years, in line with the overall net sales growth of the industry (also 5.7 percent).
In addition, it is leading the industry in terms of operating income. Operating income of HUL has risen at a CAGR of 13.8 percent in the last three years, growing from Rs 6,934 crore during FY17 to Rs 10,231 crore during the 12-month period ended December 2019. The overall operating income of the industry increased at a CAGR of 8.8 percent over the same period. Others attribute is the market share of HUL to the rich valuation.