VN Research & Consulting
 Like us on facebook  Follow us on twitter  Follow us on LinkedIn  IndiaNotes on Google Plus  IndiaNotes on Pinterest  IndiaNotes on Stumbleupon  Subscribe to our feeds


Stocks  A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z
Go
Feedback
You are here : IndiaNotes >> Research & Analysis >> Companies >> Hindustan Unilever Ltd. >> Research

Hindustan Unilever 3QFY18: Stellar Performance on Lower Base & Demand Recovery; Buy

Reliance Securities | 18 Jan, 2018  | Follow Author | Add to my Favourites 
  • Rate this article
    (Average Rating 0.0 Based on 0 ratings)



On the back of lower base effect coupled with increased growth momentum, Hindustan Unilever (HUL) has reported strong set of numbers for 3QFY18. While net sales came in at Rs83.2bn (vs. our estimate of Rs83.7bn), EBITDA grew by 24% YoY to Rs16.8bn (vs. our estimate of Rs16.5bn) and net profit before exceptional items surged 30.2% YoY to Rs12bn (vs. our estimate of Rs11bn). Revenues on comparable base grew by a healthy 17% YoY. Growth in net profit was also aided by 83% YoY increase in other income to Rs1.5bn (Dividend from subsidiary). Volume growth for the quarter was largely in line at 11% YoY, which can be attributed to lower base effect (4% YoY volume de-growth in 3QFY17).


Looking ahead, we believe strong recovery in rural demand, increasing footprint in ayurvedic space, continued trend of premiumisation, benefits of GST and cost savings will drive 11.6% revenue and 17.5% earnings CAGR for HUL through FY17-20E. We maintain our BUY recommendation on the stock with a revised Target Price of Rs1,514 (from Rs1,429 earlier).


Lower Base Aids Volume Growth


A healthy 11% YoY growth in volume not only reflects lower base effect but also recovery in growth across channels. Home Care segment witnessed comparable sales growth of 20%YoY with double-digit volume growth, while Personal Care segment reported 17% YoY revenue growth on comparable basis. The Management stated that the trade conditions have normalised with gradual improvement in demand. We expect volume growth trajectory to be around 6-7% in the coming quarters.

Premiumisation & Cost Savings to Drive Margins


Gross margins improved 290bps YoY to 53.1% aided by lower input cost on YoY basis and continued focus on premiumisation.However, input prices have been increasing sequentially, which could impact gross margins in coming quarters unless HUL undertakes commensurate price hikes.While A&P spend increased by 150bps YoY to 13.3% of sales, on absolute basis A&P grew by 25% YoY to Rs11.1bn to aid new product launches such as Ayush and renovations.Other expenses declined by 60bps YoY owing to continued focus on cost saving. Resultant EBITDA margins expanded 200bps YoY to 19.6% of sales(110bps on comparable basis).


Outlook & Valuation


With disruptions relating to GST coming to an end, we expect recovery in the growth numbers in coming quarters. HUL derives ~35-40% revenues from rural markets, which is expected to lead the overall FMCG growth on the back of normal monsoons for two consecutive years, recovery in MSPs of key crops and increased direct distribution reach. Based on expected EPS of 31.9, the stock currently trades at rich multiples of 42.9x FY20E earnings. We maintain our BUY recommendation on the stock with a revised Target Price of Rs1,514 (from Rs1,429 earlier).


  Read full report Click here to read the full report

logo
BSE
1,330.40 -3.55
(-0.27%)
NSE
1,330.60 -1.20
(-0.09%)
Read More
About Reliance Securities

Reliance Securities, the broking arm of Reliance Capital, is one of the India’s leading retail broking houses, providing customers with access to equities, derivatives, currency, IPOs, mutual funds, bonds, and corporate FDs amongst others. The large array of financial offerings helps customers fulfilling their investment objectives on one platform. Focus on timely & error-free execution represents its core strength. Their best in class research offerings, high degree of compliance with stock exchange regulations, ethical business standards, & strong risk management capabilities; Reliance Securities positions itself amongst strong & innovative brands in the financial services space.


For more information please write in to [email protected]


Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.

 




Technical Calls

What are technical calls?

Other Articles


Have a question?