A small short-term blip was seen in the Q4FY19 demand. But, we had already built in an 8% volume growth for Q4FY19 v/s a double-digit growth of the preceding five quarters. Measures announced in the Budget are expected to benefit demand from Q1FY20 onwards. We see no immediate threat to our FY20 forecast of a 7.5% volume growth. We believe HUL will continue to outperform peers over the medium term.
Material cost outlook remains benign, ad spends & promotion intensity have not picked up erratically and cost savings continue at the targeted pace.
There is no change to our forecasts. We expect its high multiples to sustain (a) on combination of continued healthy volume growth v/s peers, (b) on better earnings growth v/s its own past earnings, (c) because of the company’s best- in-breed return ratios and (d) due to synergies from the GSKCH acquisition from FY21 (we are not building in benefit from the acquisition yet in our numbers). We maintain BUY rating on the stock with a target price of `2,125, target multiple of 52x FY2021 EPS (which is a 15% premium to 3-year average due to significantly improving business fundamentals).
Our conversation with the HUL management indicated that there is a bit of relative slowdown in the Q4FY19 demand compared to the preceding five quarters, which had witnessed double-digit volume growth. Slight slowdown was witnessed across rural and urban. Rural growth remains well ahead of urban; but rural growth over urban has declined a tad, to less than 1.3x urban growth seen in the previous quarter. Therefore, we believe that HUl is unlikely to report double-digit volume growth; but, we were already building in 8% volume growth for Q4FY19 in our forecasts. Importantly, there appears to be no concern over the medium-to long-term demand. With benefits on the demand front due to the budget coming through in FY20, we maintain our 7.5% volume growth forecasts for FY20/FY21.
