Hindustan Unilever’s (HUL) Q3FY17 revenue (down 1.2% year-on-year) surpassed estimate as volumes (4% year-on-year dip versus 7% forecast) were better despite demonetisation and calibrated price hikes. Overall, underlying price growth of 4% year-on-year was led by price hikes in personal wash. Amidst rising input prices, overall gross margin fell 64bps year-on-year and 163bps q-o-q and 76bps year-on-year margin dip was largely due to lower operating leverage (ad spends remain competitive and fell mere 32bps year-on-year).
Though premiumisation trend has sustained, recovery will be gradual with easing in liquidity situation, particularly in the mass end. Success of new Ayush range is a key monitorable. Maintain ‘Hold’.
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Demonetisation impact was prevalent across categories, though it varied depending upon the channel & geography mix and product category. Home care segment grew 1% year-on-year with Surf clocking double digit growth. Personal care sales dipped 2.7% year-on-year impacted further by price hikes in the personal wash segment.
We estimate 15% y-o-y EPS CAGR over FY17-19. We remain positive on long-term prospects led by volume recovery. Key risks are rising competition and increasing input prices. Hence, we maintain ‘Hold/SP’ with target price of Rs 935. At CMP the stock is trading at 33.2x FY19E.