MOSL: HINDUSTAN UNILEVER (Buy)-Decent sales/margins performance in a quarter affected by destocking
Hindustan Unilever: Decent sales/margins performance in a quarter affected by destocking
(HUVR IN, Mkt Cap USD33.7b, CMP INR1158, TP INR1285, 11% Upside, Buy)
- Hindustan Unilever's (HUVR) 1QFY18 net sales increased 4.9% YoY (est. of +2%) to INR85.3b. Domestic consumer business grew 6% YoY, with flat volumes (est. -1%). EBITDA increased 14.1% YoY to INR18.7b (12% above estimate) and PAT (bei) rose 14.6% YoY to INR12.9b (11% above estimate).
- Home care revenues were up 5.9% YoY, while personal care witnessed 3.5% YoY growth in sales. Foods business sales were up 4.3% YoY, while refreshment sales increased 10.8% YoY. Home care EBIT margin expanded by 230bp YoY and personal care margin by 50bp YoY. Among the smaller segments, foods margin expanded by 820bp YoY (off a very low base) and refreshment margin by 310bp YoY.
- Gross margin expanded 80bp YoY to 52.1%. EBITDA margin expanded 180bp YoY to 21.9%, aided by gross margin improvement, and a decline of 30bp YoY in staff costs, 20bp YoY in adspend and 40bp YoY in other expenses. EBITDA increased 14.1% YoY to INR18.66b, higher than our estimate of INR16.69b. PAT (bei) rose 14.6% YoY to INR12.92b.
- Concall highlights: (1) Absence of CSD offtake from the beginning of June affected sales by 2% for the quarter. (2) Management expects a gradual recovery in rural demand. (3) Company aims to attain significant savings in each cost item over the next few years.
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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