Hindustan Unilever's Q3FY19 results (Outperformer) - Strong operational performance continues
Q3FY19 result highlights
- Revenues increased by 12.4% yoy at Rs93.5bn (est: Rs91.5bn), EBITDA increased by 31% yoy at Rs18.45bn (est: Rs16.9bn), EBITDA (incl other op income) increased by 22% yoy to Rs20.46bn (est: Rs19.45bn) and Adjusted PAT increased by 17% yoy at Rs14.0bn (est:Rs14.2bn)
- Domestic consumer business sales were up 13% yoy with a volume growth of 10% (est: 9%) for the quarter. Home care sales grew by 15% yoy; Personal care sales were up 11% yoy, and Foods & Refreshment segment grew by 10% yoy. Home care EBIT increased by 14% yoy with margin contraction of 10bps yoy, Personal care EBIT increased by 15.4% yoy with a margin expansion of 100bps yoy.
- Reported gross margins declined 30bps yoy (up 130bps qoq). Advertising spends were up 7% yoy. Staff cost was down 5% yoy and other expenses increased by 2.6% yoy. Resultant operational EBITDA increased by 22% yoy with a margin expansion of 180bps yoy to 21.4%. Adjusting for reclassification of fiscal benefit, margins improved by 140bps yoy.
- Depreciation was up 10% yoy, other income was down 30% yoy. Adjusting for exceptional cost of Rs620m (restructuring & disposal related charges), PAT increased by 17% yoy.
Key positives: Healthy domestic volume growth.
Key negatives: EBIT margins contraction in Home care
Impact on financials: Reduced FY19/20/21E estimates by 1%/2%/3%.
Valuations & view
HUL’s 3QFY19 earnings print was better than expectation aided by healthy volume growth coupled with continued margin expansion. While the volume growth trajectory can moderate in the near term, as the base gets normalised, we are factoring 10%/8% volume growth for FY19/20E, aided by stable demand environment and continued improvement in rural growth. While we remain optimistic on HUL’s ability in terms of mitigating volatility in costs (indicative from 6 quarters of 20%+ EBITDA growth), its ability to drive share gains, keep premiumising the portfolio, manage competition and successfully integrate GSK Consumer will be key monitorables in the medium term for incremental earnings growth. We are factoring 20% earnings CAGR over FY19-21E, and value HUL based on our FY21 estimates for the combined entity. Maintain Outperformer.
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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