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Praveen Gurwani
Broking house, JM Morgan Stanley is bullish on Hindustan Lever. It has reiterated overweight rating on the stock with a target price of Rs 240.
2006-06-19 14:55
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Broking house, JM Morgan Stanley is bullish on Hindustan Lever, HLL. It has reiterated overweight rating on the stock with a target price of Rs 240.
The JM Morgan Stanley report on Hindustan Lever:
Business fundamentals robust
“HLL’s and the FMCG sector’s business fundamentals remain robust as sector/HLL revenue growth continues to witness upward momentum. Pricing environment has improved considerably, and HLL has been able to take price increases across product categories to offset cost pressures. We also believe a new set of consumers of premium products is emerging in India that will drive sectoral growth even further. HLL is already positioning itself with brands such as Pond’s, Lakme, Dove, and Pears and separate distribution to capitalize on this evolving opportunity.”
Cost concerns persist
“Cyclical costs pressures, particularly from crude derivatives, remain high. The company has also stepped up its advertising to sales ratio to strengthen its brands and market positioning, and this may affect margins to a certain extent.”
Earnings and target price revised
“We have lowered C2006E earnings by 5% and increased C2007E and C2008E by 3% each. We believe that a higher advertising to sales ratio is likely to hurt C2006E. We have changed target price calculation and now use DCF-based intrinsic value rather than relative multiples. Factoring in a 6% risk premium, we have lowered target price from Rs 330 to Rs 240.”