Hindustan Unilever's Q4FY18 results (Outperformer) - Going from strength to strength!
Q4FY18 result highlights
- Revenues increased by 11% yoy at Rs90bn (est: Rs89.8bn), EBITDA increased by 27% yoy at Rs19.5bn (est: Rs18bn) and Adjusted PAT increased by 26% yoy at Rs14.1bn (est:Rs13.7bn)
- Comparable domestic consumer business sales were up 16% yoy with a volume growth of 11% (est: 8%) for the quarter.
- On segmental basis, Home care sales grew by 21%; Personal care segment grew by 13% while Refreshment and Foods segment grew by 14% and 10% yoy respectively.
- Reported gross margins improved 180bps yoy. Advertising spends increased by 25% yoy, however, staff cost was up 3% yoy and other expenses declined by 2.6% yoy. Other operating income declined by 17% yoy. Resultant operational EBITDA increased by 24% yoy with a margin expansion of 240bps to 22.5%. On comparable basis, margins were up by 160bps yoy.
- Other income increased by 20% yoy, depreciation was up 19% yoy and effective tax rate was up 310bps yoy.
Key positives: Strong domestic volume growth.
Key negatives: Muted growth in popular soaps
Impact on financials: We have increased our FY19/20E earnings estimate by 1%/2%.
Valuations & view
HUL 4QFY18 results were ahead of expectations on all the key metrics with the company achieving consecutive double digit volume growth for the first time in 7 years. We believe that with GST led price cuts, further uptick in rural demand and a favorable base for 1HFY19, HUL is well placed to deliver high single digit volume growth in FY19 (est 9%). While increase in input cost inflation and higher advertising spends due to uptick in competitive intensity poses a challenge, HUL’s ability to take judicious price hikes, drive operating leverage due to higher volume growth and benefit from its cost savings programs, we believe, can offset this impact and drive gradual EBITDA margin improvement from current levels also. Though valuations at 46x FY20E earnings appear rich, we believe superior execution and strong earnings visibility (CAGR of 18% over FY18-20E) for a company of this scale, more than justifies the premium. 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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