Hindustan Unilever Rating: Buy – Volumes were strong despite Covid wave

By: |
July 27, 2021 1:24 AM

Growth broad-based across segments; margins likely to improve in H2; ‘Buy’ rating retained with TP of Rs 2,900

Bars of Hindustan Unilever Ltd. Lux soap are displayed for sale on a shelf at a store in Mumbai, India, on Saturday, April 27, 2013. Consumer goods maker Hiindustan Unilever is scheduled to report earnings today. Photographer: Kuni Takahashi/Bloomberg

Hindustan Unilever (HUL) reported Q1FY22 net sales (up 12.8% y-o-y), Ebitda (up 7.7% y-o-y) and adjusted PAT (up 4.4% y-o-y) ahead of our estimates. Domestic volumes rose 9% y-o-y on a base of -8% y-o-y, ahead of expectations. Growth was broad-based with all segments clocking strong double-digit growth. April saw sustained growth momentum from Q4FY21; subsequently, the shoot-up in Covid cases made May a challenging month. June marked a rebound to Mar-21 levels; all in all, HUL exited the quarter on a strong note.

Overall, an improving portfolio mix combined with cost control, price hikes and synergies from the GSK takeover should aid Ebitda margin despite inflationary input prices. Retain Buy with a TP of Rs 2,900.

Broad-based growth: HUL logged strong volume growth of 9% y-o-y despite the second wave. The company has ramped up e-commerce operations, whose contribution has doubled since Q1FY21. 80% of the business is gaining relative penetration. The home care segment grew 12% y-o-y enabled by double-digit growth in Fabric Wash. Beauty & Personal Care grew 13% y-o-y led by Hair Care and Skin Care, both growing in high double-digits. Foods & Refreshment delivered another quarter of strong performance, up 12% y-o-y.

The HFD portfolio is gaining penetration sequentially; its volumes grew in mid-single digit. Gross margin dipped 146bps y-o-y due to a spike in inflation in a few key raw materials (tea, palm oil); q-o-q, gross margin dipped 216bps due to the second wave’s impact on the discretionary portfolio. Cost optimisation restricted Ebitda margin dip to 114bps y-o-y.

Conference call takeaways: Q1FY22 pricing is ahead of Q4FY21. The sequential lower difference in value and volume is down to Covid-led promotions volatility. With commodity prices at multi-year high levels, the company is looking to make sensible pricing decisions to maintain its healthy volume growth. As mobility improves, the mix would improve; hence margins too will improve.

Outlook: On a firm footing – We expect HUL to be a key beneficiary of strong rural demand. Demand situation is dynamic though due to Covid-19 uncertainty; however, HUL is well placed in terms of supply chain preparedness. We retain ‘BUY/SO’ with a TP of Rs 2,900. The stock is trading at 51.5x FY23e EPS.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Exit of Gaurav Gupta does not warrant any disclosure under listing regulations: Zomato
2Analyst Corner – Auto PLI scheme: NEVs remain the centrepiece
3Corporate bond yields ease on demand from mutual funds, insurers