Analyst Research Report Snapshot

Title:

Hindustan Unilever Ltd.-Q3FY14 Result Update - "ACCUMULATE"

Price:

$58.00

Provider:

Kisan Ratilal Choksey Shares and Securities Private Limited

Date:

31 Jan 2014

Pages:

6

Type:

AcrobatPDF

Companies referenced:

HLL.NS

Available for Immediate Download
Summary:

Hindustan Unilever Ltd.-Q3FY14 Result Update CMP: Rs 570 Target Price: Rs 646 Recommendation: ACCUMULATE “Sustained volume growth in key segments” Hindustan Unilever (HUL) reported net sales growth of 9% Y-o-Y and 5%Q-o-Q to Rs.7223Crs. for Q3FY14. Domestic consumer business grew at 10% y-o-y led by underlying volume growth of 4%. EBITDA margins for Q3FY14 saw an improvement by 62bps Y-o-Y and 124bps Q-o-Q to 16.4%. Net profit for the quarter grew by 13.2% y-o-y to Rs.913crs. PAT margin showed a significant improvement by 161bps Y-o-Y and 145bps Q-o-Q to 14.7% led by increase in other income which grew by 7% Y-o-Y. Consistent Volume growth: HUL’s underlying volume growth (UVG) contracted to 4% in Q3FY14 as against 5% in Q2FY14 and 5% in Q3FY13. Topline grew by 9% y-o-y and 5% q-o-q basis to Rs.7223Crs on the back of festive season buying and increasing demand from rural segments. The company was able to reduce COGS down 110 bps driven by judicious pricing, lower promotions and cost savings. Domestic consumer business continued to grow by 10% for Q3FY14 as well. HUL continues to record health volume growth across brands and categories. Soaps and detergents registered sales growth of 7% led by the re-launched Wheel powder and its other brands. In the household segment HUL sustained double digit growth across Vim and Domex. Skin care segment was the best segment with re-launched fair & lovely doing well along with Lakme and Elle 18. In hair care, the company susatianed strong growth momentum and it expanded portfolio with launch of Clinic Plus Vita Oil. In Oral care, Pepsodent led by strong growth on GermiCheck post its re-launch last quarter and A&P significantly stepped up to sustain competitive position. Despite Marginal Volume growth Margins witness expansion: Both the EBITDA as well the PAT margins saw significant improvement despite lower volume growth. EBITDA margin was at 17% in Q3FY14 which improved by 62 bps Y-o-Y and 124 bps Q-o-Q while the PAT margin improved significantly by 161bps Y-o-Y and 145bps Q-o-Q to 14.7%. Margins improved due to increase in other income which included Interest, dividends & gain on sale of other non trade current investments Rs.131Crs and Interest on income tax refund of Rs.12Crs. also increase in exceptional items which included profit on sale of properties Rs. 28Crs and restructuring costs of Rs.5Cr. Valuations & Views: The Market remains challenging for HUL, with consumer inflation high, overall sentiment weak, macro economics uncertain and unstable political scenario. Despite these, we believe that with well positioned brands, operating efficiency and investment in core competencies of the company HUL will continue to grow 10% in FY14E and 14% FY15E and our overall view on the FMCG sector remains positive. The stock is currently trading at a P/E of 29.3x and 25.6x its FY14E and FY15E earnings. We maintain our Accumulate recommendation on the stock with a target price of Rs.646, (29x FY15E EPS of Rs.22.28), giving an upside potential of 13.35%.

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