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You are here : IndiaNotes >> Research & Analysis >> Companies >> Hindustan Unilever Ltd. >> Research

Hindustan Unilever Q3FY18: Good growth and margin improvements; Hold

Way2wealth | 22 Jan, 2018  | Follow Author | Add to my Favourites 
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HUL declared its Q3FY18 results recently. The key highlights were as follows:

1.       For the quarter, the company's comparable* domestic consumer business grew at 17% within 11% underlying volume growth. This was mainly due to low base Q3FY17 and due to gradual recovery in demand. Comparable EBIDTA margin expanded by 110 bps.

2.       Growth and margin improvement were mainly achieved through a combination of favorable product mix & cost saving measures.

3.       The company maintained its strategy to focus on volume driven growth and improvement in operating margin through cost saving programmes while strengthening its portfolio through innovation, premiumization, and sharpening its execution capabilities to serve consumers even better.

Underlying the key building blocks for the future is a key thrust on driving premiumization across categories. Currently ~25-28% of the FMCG market is premium while the leftover is equally divide among the popular & mass offering segment. It is expected that over the next 2-3 years the premium segment of the market will grow at the fastest rate (~1-1.5%) while mass segment will de-grow (~1.5-2%).

HUL has passed on benefits to the consumer in the soaps, hair oil, detergent bars & toothpaste. Apart from that, investment in the “Natural Care” space should drive future growth. The company will soon launch Citra to further penetrate this space.

HUL continues to invest in creating value propositions for the consumer. The next financial year’s performance will be dependent on demand revial in rural markets coupled with the success of the natural care portfolio in response to the national rollout. We expect GST implementation and the anti-profiteering case to also be resolved without much of a glitch. Recent commentary from parent Unilever, directs the conglomerates’ intent to improve margins over the next two years. With HUL contributing sizably to the parent company we believe company’s focus on profitable growth will be further ingrained. The company is now focusing on delivering a cost savings of ~6% part of which will be reinvested to fuel future growth & the remainder will flow to margins. This has already started showing up in the results. At the CMP of Rs1362.6/- the stock trades at 60.0x & 52.2x its estimated EPS of Rs22.7/- & Rs26.1/- for FY18E & FY19E respectively. We advise investors to HOLD the stock.

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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 accept any liability whatsoever arising from the use of any of the above contents.

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