MOSL: HINDUSTAN UNILEVER (Buy)-Remarkable growth in EBITDA augurs well for future

​Hindustan Unilever: Remarkable growth in EBITDA augurs well for future

(HUVR IN, Mkt Cap USD42.4b, CMP INR1274, TP INR1440, 13% Upside, Buy)

• HUVR's 2QFY18 net sales rose 5.9% YoY to INR83.1b. Domestic consumer business grew 10% YoY, with 4% underlying volume growth. EBITDA increased 19.5% YoY to INR16.8b (est. of INR15.6b) and PAT (bei) by 14.2% YoY to INR12.4b (est. of INR11.9b). EBIT margin expanded by 390bp YoY for Home care, 130bp for Personal care, 110bp by Foods and 280bp for Refreshment.
  
• Segmental performance: Home care and Personal care revenues were up 13% and 8% YoY, respectively. Sales of Foods and Refreshments - the relatively small segments - were up 10% and 11% YoY, respectively.
  
• Gross margin expanded 320bp YoY to 52.7%. High ad spends (+150bp YoY) and a slight increase in employee costs (+20bp YoY) were partially offset by lower other expenditure (-70bp YoY). Thus, EBITDA margin expanded 230bp YoY to 20.2%. Comparable margin expanded 180bp YoY.
  
• 1HFY18 comparable domestic consumer business grew 8% YoY, with EBITDA margin expansion of 170bp YoY.
  
• Concall highlights: (1) Expect gradual improvement in rural demand. (2) Input costs starting to inflate. Management expects further inflation. (3) Lever Ayush now available nationally across channels, but with a focus on urban areas.