Hindustan Unilever Q3FY17: Accumulate the stock in a staggered manner

Way2wealth | April 15, 2013, midnight


HUL declared its Q3FY17 results on recently. The key highlights were as follows:

  • Growth muted on the back of challenging demand environment. For the quarter, the company's operating revenues declined by 1.2% Y-O-Y to Rs7512.5crs. Volumes de-grew by 4%.
  • While demonetization adversely impacted the personal care segment, growth in refreshments segment and premium laundry care segment supported the topline.
  • The company reiterated its strategy focus on volume growth and improvement in operating margin while strengthening its portfolio through innovation, premiumization, and sharpening its execution capabilities to serve consumers even better.


VALUATION & OUTLOOK


Demonetization impacted the consumption environment this quarter. This was not a normal quarter for the company. As a leader in its place the company took creative initiatives to tackle the impact. While trade is still adjusting to the initiatives of a digital economy, we believe unban consumer offtake will see a speedy bounce back in the quarters ahead. The rural consumer continues to rock the boat.. We believe that for meaningful growth to return to the sector, the rural demand has to come back. The onset of monsoons and even distribution of rainfall in the country has added hope to recovery at the end of the fiscal year. Apart from that, investment in the “Natural Care” space with its new launch of Lever Ayush will drive future growth. We expect the next few quarters to be challenging in the face of weak demand & trade adjustments. We expect secondary sales to pick up in latter part of FY18 while margins to remain under pressure on account of competitive intensity and higher expenses to push up sales (ad expenses). HUL continues to invest in creating value propositions for the consumer. We believe the revival in consumer sentiment will flow through post harvest season early next year. After two consecutive years of drought revival in rural demand will be slow. At the CMP of Rs 860.95/- the stock trades at 40.8x & 37.7x its estimated EPS of Rs21.1/- & Rs22.8/- for FY17E & FY18E respectively. We advise investors to ACCUMULATE the stock in a staggered manner.

 

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