Hindustan Unilever: Operating margins likely to stay flat at 15.1%, sell
- Motilal Oswal expects HUVR to post 3% volume growth and 8% revenue growth. Consumer demand has worsened sequentially across categories. This coupled with high base (4QFY13 had 100bp beneficial impact of inventory filling ahead of transporters' strike).
- HUVR has taken price hikes in Soaps to pass on palm oil inflation. However, pricing anniversary in Beverages will offset realization growth further (3QFY14 already saw muted revenue growth). PP is expected to see muted performance - Fair & Lovely (F&L) relaunch is witnessing encouraging response but the base quarter had 10% extra promotion.
- Operating margins are likely to stay flat at 15.1%. Elevated competitive intensity in Oral Care would keep advertising and promotion spends high. However, note that media inflation is relatively benign due to pressure on prices post decline in non-Consumer GRPs.
- Expect EBITDA and PAT to grow at a subdued 8.2% and 5.7%, respectively. The stock trades at 33.1x FY15E EPS of Rs18. Sell.
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Motilal Oswal was founded in 1987 as a small sub-broking unit, with just two people running the show. Today it has a 2000 member team with a networth of Rs7 bn and market capitalization as of March 31, 2008 at Rs19 bn.
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