Surprise! HUL beats ITC to become India's largest FMCG firm; fourth largest overall

The pace at which HUL has overtaken ITC is breath-taking! Hindustan Unilever on Friday pipped its rival ITC to become the largest FMCG behemoth in terms of market capitalisation. The company has also become India's fourth most valued company. Notably, just last month, HUL had joined the coveted club of India's top five most profitable firms. 

The top three most valuable companies include TCS (Rs 6,70,450.51 crore), Reliance Industries (Rs 5,91,353.05 crore) and HDFC Bank (Rs 5,22,745.23 crore).     

HUL's market cap rallied Rs 6712 crore in a day to quote at Rs 3,47,212.06 crore by Friday's close. It is Rs 2868 crore higher than ITC's market value of Rs 3,44,344.18 crore. 

HUL share price settled at Rs 1604.10, up 2.2 per cent on BSE, while ITC share price ended at RS 282.15, UP 1.13 per cent. HUL share price has rallied nearly 60 per cent in the last one year, while ITC share price has remained flat.

HDFC Securities believes HUL's earnings growth will sustain driven by recovery in rural demand, premiumisation, new product launches, strong pricing power (pass on inflation) and strong brand investments. "We upgrade our multiple to 45x (43x earlier) P/E on Mar-20EPS to arrive at a target price of Rs 1,615. We re-iterate BUY," said HDFC Securities in a results review report. 

However, Motilal Oswal Securities has a neutral rating on ITC with a target price of Rs 1,615. 

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"While the gloom is ebbing, we expect the improvement to be gradual. We estimate moderate 12-13% earnings growth in the medium term. Possible increase in GST rates in the subsequent GST Council meetings remains an overhang. If ad valorem duty is increased, it would sour the investment case further," said MOSL. 

ITC is trading at a discount to Indian FMCG peers at 28.6x FY19E and 25.2x FY20E EPS, but it is at a premium to global cigarette majors, noted MOSL. "

"Due to the uncertain outlook around cigarette earnings, which account for 86 per cent of EBIT, we maintain Neutral with target price of Rs 295," it added.