MOSL: HINDUSTAN UNILEVER (Buy)-Double-digit earnings growth in tough quarter reinforces positive view
HINDUSTAN UNILEVER: Double-digit earnings growth in tough quarter reinforces positive view
(HUVR IN, Mkt Cap USD53.2b, CMP INR1693, TP INR1970, 16% Upside, Buy)
- HUVR's net sales grew 6.6% YoY to INR101b (v/s est. of INR102b). EBITDA of INR26.5b was up 17.6% YoY (13% on comparable basis after adjusting for Ind- AS 116; v/s est. of 8.7% to INR24.5b), while PAT (bei) was up 11.7% YoY to INR17.5b (v/s est. of INR17.4b). Domestic consumer business sales were up 7% YoY led by underlying volume growth of 5% YoY (v/s est. of 5%).
- Key highlights from concall: (1) Company took a 4-6% price reduction in Lux, Lifebouy and Pears in July given that commodity costs are softening further; this is expected to boost demand, (2) Barring home care and certain pockets in modern trade, competitive intensity has declined in most categories, which is one of the factors resulting in lower industry-wide ad spends, and (3) New launch momentum remains strong.
- Valuation & view: HUVR's in-line results mean that there is no material change to EPS forecasts. Weak realization growth due to passing on of low commodity costs was offset by better operating margins. Four key trends are particularly relevant for HUVR and point towards an elevated earnings growth trajectory compared to the past, such as (1) rapidly improving adaptability to market requirements, (2) recognition and strong execution on Naturals, (3) continuous strong trend towards premiumization, and (4) extensive plans to employ technology, creating further entry barriers. Importantly, once we incorporate the GSKCH merger (no clarity on the date as yet), there could be 8-9% addition to EPS in FY21, which means that the stock is actually trading at ~40xFY21 v/s 43.3xFY21 that appears currently. We believe the premium valuations are justified as the company has the best earnings growth visibility in the large-cap Indian consumer space, and also, the highest return ratios so far. On a target multiple of 48x Jun'21 EPS, we derive a TP of INR1,970, with 16% upside.
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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