Hindustan Unilever's Q2FY19 results (Outperformer) - Continued volume and margin outperformance!
Q2FY19 result highlights
- Revenues increased by 11.5% yoy at Rs91.4bn (est: Rs92bn), EBITDA increased by 22% yoy at Rs19.2bn (est: Rs18.8bn), EBITDA (incl other op income) increased by 20% yoy to Rs20.2bn (est: Rs20bn) and Adjusted PAT increased by 23% yoy at Rs15.2bn (est:Rs14.6bn)
- Domestic consumer business sales were up 12% yoy with a volume growth of 10% (est: 9%) for the quarter.
- For 1HFY19, Operational revenues, EBITDA (incl other income) and Adj PAT increased by 11%, 20% and 22% yoy respectively. EBITDA margins up 170bps yoy.
- Home care sales grew by 13% yoy; Personal care sales were up 11% yoy, and Foods & Refreshment segment grew by 12% yoy. Home care EBIT increased by 28.5% with margin expansion of 200bps yoy (down 310bp qoq), Personal care EBIT increased by 17.6% with a margin expansion of 160bps yoy.
- Reported gross margins declined 60bps yoy (down 190bps qoq) impacted by higher input costs. Advertising spends increased by 8% yoy, however, staff cost was up 0.7% yoy and other expenses declined by 0.3% yoy. Resultant operational EBITDA increased by 20% yoy with a margin expansion of 170bps yoy to 21.9%.
Key positives: Healthy domestic volume growth.
Key negatives: Sequential drop in EBIT margins in Home care
Impact on financials: No change in estimates.
Valuations & view
HUL delivered a strong performance for 1HFY19 with double digit volume growth coupled with healthy margin expansion. While 2HFY19 is relatively more challenging as the base gets normalised on the volume/revenue front, however, with a stable demand environment and improving rural growth we expect HUL to deliver ~8.5% volume growth for the year. Further with benefit of recent price hikes, continued premiumisation and its ability to extract savings from entire value chain, mitigating input cost inflation should not be a challenge. We have reduced our target multiple to factor recent correction in FMCG basket, however, given HUL’s ability to manage the challenging environment and healthy earnings visibility (19% CAGR over FY18-21E) relative to peers, we maintain our Outperformer rating on the stock.
Hindustan Unilever is predominantly engaged in manufacturing and distributing consumer products mainly in India. Co. operates five main business segments: Soaps and Detergents include soaps, detergent bars, detergent powders, detergent liquids, scourers, etc.; Personal Products include products in the categories of Oral Care, Skin Care (excluding soaps), Hair Care, Deodorants,Talcum Powder, Colour Cosmetics, Ayush services; Beverages include tea and coffee; Package Foods include Branded Staples (Atta, Salt, Bread, etc.), Culinary Products (tomato based products, fruit based products, soups, etc.) and Frozen desserts; Others include Exports, Chemicals, Water business, Infant Care Products.
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