In a recent analysis, Jefferies delved into the market dynamics of two giants – Hindustan Unilever Limited and Bharti Airtel. The report highlights a shift in fortunes and preferences, providing an insightful perspective for investors.
Comparing the two companies, Jefferies notes that while HUL and Bharti Airtel currently share similar market capitalization, their journeys over the past decade have been markedly different.
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Bharti Airtel faced challenges such as adverse regulatory environments and rising competition until 2019, whereas HUL experienced margin-led earnings growth that propelled its market capitalization to three times that of Bharti Airtel at one point.
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However, the tide seems to be turning. With the telecom sector moving towards a duopoly, Bharti Airtel is gaining momentum, while growth and valuations present a complex scenario for HUL. Jefferies recommends Bharti Airtel over HUL, citing the telecom giant’s advantageous position.
Both companies are deeply rooted in the Indian consumption story, but Bharti Airtel stands out with a forecasted nearly twice the revenue growth (c.15%) compared to HUL over the period from FY23-26E. This growth is expected to be mirrored in EBITDA, with Bharti Airtel projected to outperform HUL significantly (20% CAGR versus 9% CAGR).
Jefferies predicts that balance sheet deleveraging will further amplify the impact, projecting over 50% CAGR in EPS for Bharti Airtel compared to HUL, whose EPS growth is anticipated to follow the EBITDA trend. As a result, Bharti Airtel is expected to generate three times higher Free Cash Flow.
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In terms of market presence, HUL is the undisputed FMCG market leader across most categories, commanding a third of the market share in its operational segments. On the other hand, Bharti Airtel, with over 70% of its revenues coming from India and the rest from Africa, maintains a near-similar overall market share (c35%). Bharti Airtel’s broadband and DTH segments fall slightly below the company level, while its mobile segment enjoys a slightly higher market share.
The Jefferies report concludes that the shift in market dynamics presents Bharti Airtel as a more promising investment opportunity, capitalizing on the evolving landscape of the Indian market. Investors are urged to consider this analysis in their decision-making process as the two giants continue their journeys through the intricate realms of Indian business.
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The Sensex has fallen nearly 6% on June 4, recording one of its biggest declines in recent years, as the incumbent BJP failed to secure a simple majority on its own. The overall investor wealth tumbled by more than Rs 30 trillion.
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