MOSL: HINDUSTAN UNILEVER (Buy)-Broad-based growth encouraging, margins impressive despite high ad-spend
Hindustan Unilever: Broad-based growth encouraging, margins impressive despite high adspend
(HUVR IN, Mkt Cap USD55.3b, CMP INR1754, TP INR2010, 15% Upside, Buy)
- HUVR's reported net sales grew 11.2% YoY to INR95b in 1QFY19. Domestic comparable consumer business sales rose 16% YoY, with underlying volume growth of 12% YoY (est. of +15%); base quarter volumes were flat. EBITDA grew 20.6% YoY to INR22.5b (est. of INR22.9b) and PAT (bei) rose 21.3% YoY to INR15.7b (est. of INR16b).
- Gross margin expanded 190bp YoY to 54%, led by a better mix, pricing action and cost savings. EBITDA margin expanded 180bp YoY to 23.7%, as higher adspend as % of sales (+150bp YoY to 12.2%) was offset by lower other operating expenses. Comparable margin expanded 100bp YoY.
- Concall highlights: (1) Demand is gradually improving. (2) Detergents doing very well and gaining share, despite significant discounting by P&G (Ariel).
- Valuation view: Continued broad-based volume growth and strong EBITDA growth despite high adspend were the key highlights of 1QFY19 results. HUVR's volume growth outperformance - even compared to much smaller players - in recent quarters is remarkable. Four key trends are particularly relevant for HUVR, which have resulted in an elevation in its earnings growth trajectory of ~20% compared to peers and also its own history - (i) its rapid adaptability to market requirements, as exemplified by its WIMI strategy, (ii) its strong execution and recognition of naturals as a key sub-segment across categories, (iii) strong trend toward premiumization and (iv) extensive plans to employ technology, creating further entry barriers. HUL not only offers highest earnings visibility in the large-cap Indian consumer space, but also has by far the highest return ratios. On a target multiple of 54x Jun'20E EPS (25% premium to three-year average due to significantly improving business fundamentals), we get a TP of INR2,010 (prior: INR1,925). Maintain Buy.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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