MOSL: HINDUSTAN UNILEVER (Buy)-Impressive volume growth-superior execution
Hindustan Unilever: Impressive volume growth; superior execution, good monsoon make the growth story even more compelling
(HUVR IN, Mkt Cap USD51.1b, CMP INR1505, TP INR1805, 20% Upside, Buy)
- HUVR’s 4QFY18 reported net sales grew 10.8% YoY to INR91b. Domestic comparable consumer business sales were up 16% YoY, with underlying volume growth of 11% YoY (est. of +7%). EBITDA grew 24% YoY to INR20.5b (est. of INR19.1b) and PAT (bei) rose 26% YoY to INR14.1b (est. of INR13b). Gross margin expanded 150bp YoY to 52.6%. Other operating expenses as % of sales were down 90bp YoY. Thus, EBITDA margin expanded 240bp YoY to 22.5%. Comparable margin expanded 160bp YoY.
- FY18 performance: Sales, EBITDA and adj. PAT grew 8%, 20% and 21%, respectively. EBITDA margin expanded 210bp.
- Concall highlights: (1) Demand is improving gradually – the trend is likely to continue. (2) Naturals is growing at ~2.5x that of HUL average. (3) WIMI is growing at 1.5x that of all-India average over the past three years.
- Valuation view: 21% growth in PAT (bei) in FY18 was the highest since FY13, and we believe EPS growth will sustain at similar levels over the next two years. HUL’s superior volume growth outperformance – even compared to much smaller players – is appreciable. Commodity inflation, unless it spirals out of control, is likely to increasingly contribute to sales growth, and margin trajectory is impressive and will be aided further by leverage arising from strong sales growth. Four key trends are particularly relevant for HUL resulting in an elevation in its earnings growth trajectory compared to the past – (i) its rapidly improving adaptability to market requirements, (ii) its recognition of Naturals as a key sub-segment across categories, (iii) continuing strong trend toward premiumization and (d) extensive plans to employ technology. On a target multiple of 51x Mar’20E EPS (15% premium to three-year average due to significantly improving business fundamentals), we get a TP of INR1,805 (prior: INR1,515). 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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