MOSL: HINDUSTAN UNILEVER (Buy)-Healthy volume-led growth continues-near-term demand stable
HINDUSTAN UNILEVER: Healthy volume-led growth continues; near-term demand stable
(HUVR IN, Mkt Cap USD53.4b, CMP INR1750, TP INR2120, 21% Upside, Buy)
- HUVR's reported net sales grew 11.3% YoY to INR95.6b in 3QFY19. Domestic comparable consumer business sales were up 13% YoY, with underlying volume growth of 10% YoY (our estimate: +6% YoY). EBITDA grew 21.8% YoY to INR20.5b (our estimate: INR19.9b), while PAT (bei) increased 16.9% YoY to INR14b (our estimate: INR14.1b).
- 9MFY19 performance: Sales/EBITDA/adj. PAT increased 11.2%/20.8%/20.5% YoY. Gross/EBITDA margin expanded 10bp/180bp YoY. For 4QFY19, we expect sales/EBITDA/adj. PAT growth of 9.5%/14.4%/11.6% YoY.
- Concall highlights: (1) Rural growth continues exceeding urban growth (1.3x in 3QFY19). (2) There has been no material increase in competitive intensity.
- Valuation view: There is no material change to our forecasts. Continued healthy volume growth (despite a challenging base) and strong EBITDA growth (despite absence of significant price increases) augur well for sustainability of earnings growth. HUL's consistent and superior volume growth outperformance, even when compared with much smaller players, provides huge comfort. We expect this trend to continue, offering the best visibility among staples from a volumes growth perspective. Four key trends are particularly relevant for HUL resulting in an elevation in its earnings growth trajectory of ~20% compared to the past: (1) Rapidly improving adaptability to market requirements, as exemplified by its 'Winning In Many Indias' (WIMI) strategy. (2) Recognition and strong execution on Naturals. (3) Continuous strong trend toward premiumization. (4) Extensive plans to employ technology, creating further entry barriers. HUL not only offers the best earnings growth visibility in the large-cap Indian consumer space, but also has by far the highest return ratios, justifying premium valuations. On a target multiple of 54x Dec'20E EPS (~20% premium to three-year average due to significantly improving business fundamentals), we derive a TP of INR2,120. 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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