Hindustan Unilever

Till date, the southwest monsoon has been fairly widespread and normal. A favourable monsoon will significantly increase the rural income in the current year. This is particularly positive for HUL for whom the rural markets account for an estimated 50% of incremental growth. This will pave the way for a reasonable sales growth, besides even better profitability.

For the long-term, there is no doubt about its prospects. Increasing urbanisation, improving literacy level, expanding media reach, growing disposable income, changing attitudes and aspirations and a young and growing population all will ensure sustained growth.

Consider these: The per capita consumption of personal wash products in India is 0.5 kg compared to 1.1 kg in Brazil and 2 kg in USA, for fabric wash the figure is 2.6 kg in India compared to 7.2 for Brazil and 13.1 in USA.

The per capita consumption for other products is also currently very low. Toothpaste: 40 ml in India, 358 ml in Brazil and 299 ml in USA, shampoo: 16 ml in India, 444 ml in Brazil and 1,018 in USA, ice cream: 0.98 ltr in India, 1 ltr in Brazil and 22 ltr in the USA.

All these indicate very low level of penetration and tremendous growth prospects. High GDP growth and increase in per capita income is bound to more than proportionately increase demand for the company's products.

Valuation

In FY 2007 (ending December 2007) we expect the company to register sales and net profit of 13696.70 crore and Rs 1905.48 crore respectively. On equity of Rs 220.70 crore and face value Re 1 per share, EPS works out to Rs 8.3. The share price trades at Rs 196. P/E works out to reasonable 23.6.