FY19 was another year of solid and consistent performance (eighth consecutive year of top line and margin improvement) with broad-based growth (led by home care). UVG inched up to double digits (after eight years) and revenue growth/ EBITDA margin also hit multi-year highs.
On B/S side, RoE inched up 700 bps aided by lower capex intensity and higher margin, while deterioration in working capital position (still negative and industry-leading) dragged FCF (down 2% YoY).
We continue to stay impressed with HUL’s solid in-market execution, strong innovation machinery and relentless focus on portfolio premiumization and market development. While valuations are rich, we believe, strong and superior quality of earnings deserves a premium multiple. We retain the ‘add’ rating; target price remains unchanged.
FY19 revenue, EBITDA and recurring PAT grew 11%, 19% and 18% YoY respectively; underlying domestic consumer business growth stood at 12% YoY led by ~10% volume growth. Underlying EBITDA margin expanded 130 bps led by savings in multiple cost heads (GM and A&P spends were flat Y-o-Y).
Home Care remained the star performer for third consecutive year delivering 15% sales growth and 27% EBIT growth (accounted for 37% of incremental EBIT, lower than 42% contributed by beauty & personal Care).
(1) Working capital position deteriorated a tad by 6 days of sales to negative 39 days of sales led by increase in receivables (by 4 days) and reduction in payables (by 6 days), (2) RoE improved for second consecutive year to 83% (up 700 bps YoY) aided by improvement in margin and lower capex intensity, (3) FCF dipped 2% YoY to Rs 49.9 bn despite an 18% Y-o-Y jump in CFO and lower capex intensity dragged by deterioration in working capital.