We hereby present you our investment idea for Equity Investment i.e “Pick of the Week”. A thorough analysis of company, industry and economy goes behind our stock ideas for you. With the “Pick of the Week”, you may earn superior returns in stock market over a time horizon of 6 – 9 months.

INVESTING RATIONALE

• Q2FY19 sustained underlying volume growth: Domestic consumer sales growth in Q2FY19 was 12% higher driven by a 10% underlying volume growth a consecutive 4th quarter of strong double-digit volume led growth. The strong topline performance is owing to a healthy double digit growth across all its segments like Home Care (33% sales) up 12.4% YoY, Personal Care (47% sales) up 10.4% YoY and Food & Refreshments (18% sales) up 13.3% YoY.

• EBITDA Margin expansion by 160bps despite GM contraction: During Q2FY19, Gross Margins for HUL contracted by 70bps owing to RM inflation. Despite this, the company reported an EBITDA Margin of 21.9% (+160bps YoY) owing to strong focus on cost savings program and operating leverage.

• Macro Outlook: Management indicated demand continues to remain stable in Q2FY19 with rural growing ahead of urban at a factor of 1.2x of Urban. Competitive intensity over the last 3-4 months has come off. However, key monitorables going forward are clearly rising crude oil prices and currency depreciation.

• Valuation: We believe, HUL offers best earnings growth visibility ~20% earnings growth in the large cap Indian consumer space along with superior Return Ratios, thereby continuing to trade at premium valuations. For this we believe HUL will work towards executing and growing based on four key trends like 1) rapidly improving adaptability to market exemplified by WIMI strategy, 2) strong execution in Naturals, 2) continues strong premiumization trend, 4) extensive plans to employ technology and create further entry barriers would aid HUL report superior earnings growth going forward.

• We maintain a BUY with a target of Rs 1723