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MOSL: Morning India (15/October/19): 1. Hindustan Unilever (Earnings momentum strong, reinforcing investment case further); 2. Delta Corp (In-line performance; multifold expansion in online margin); 3. Ecoscope

MOrning India (15/October/19): 1. Hindustan Unilever (Earnings momentum strong, reinforcing investment case further); 2. Delta Corp (In-line performance; multifold expansion in online margin); 3. Ecoscope; 4. Cement

 Today’s top research idea

Hindustan Unilever: Earnings momentum strong, reinforcing investment case further

• Reported net sales grew 6.7% YoY to INR98.5b. EBITDA of INR24.4b rose 21% YoY (16% on comparable basis), while PAT (bei) rose 20.4% YoY to INR18.3b (est. INR16.1b). Note that HUVR has started utilizing corporate tax benefits from 2QFY20 itself. Domestic consumer biz sales rose 7% YoY, led by underlying volume growth of 5% YoY (est. 6%). Gross margin expanded by 250bp YoY to 54.5% and EBITDA margin by 290bp YoY.
• Revenue was in line, while margin surprised yet again. Once we incorporate GSKCH merger (final approvals awaited), there could be 8-9% addition to EPS in FY21, which means HUVR trades at ~45.3x FY21E v/s 49.4x as it appears now.
• Best-of-breed earnings visibility and by far highest return ratios justify premium valuations. On a target multiple of 50x Sep'21E EPS, we derive TP of INR2,265.

Piping hot news

Retail inflation soars to 14-month high on higher food prices

India’s retail inflation sharply accelerated in September to a 14-month high at 3.99%, almost touching the central bank’s medium-term target of 4%, as food inflation nearly doubled to 5.1%. The high retail inflation could limit the Reserve Bank of India’s (RBI’s) ability to further cut policy rates.