Decent quarter; Outlook positive
Hindustan Unilever (HUL), a subsidiary of Unilever PLC, is India’s leading FMCG Company. It has over 35 brands spanning across 20 distinct categories, such as soaps, detergents, shampoos and skin care.
* Q2FY21 standalone revenue rose 16.1%, primarily aided by improved sales from Food & Refreshments segment.
* EBITDA margin improved 30bps YoY to 25.1% mainly benefitted from Nutrition business (acquisitions). Excluding this impact, on a like-tolike basis, margin declined 60bps.
* Company is set to benefit from winter portfolio demand which usually picks up by September. Also, we expect non-staple demand to recover and production and supply-chain disruptions to subside post-lifting of lockdowns. Hence, we upgrade our rating to a BUY on the stock with a revised target price of Rs. 2,440 based on 57x FY22E adj. EPS.
Food segment drives topline growth
HUVR reported 16.1% YoY increase in revenue in Q2FY21 to Rs. 11,442cr, primarily helped by acquisition of GSK Consumer Healthcare and contribution from food segment. Foods & Refreshment segment revenue surged 82.9% YoY to Rs. 3,379cr. This was partly offset by weak revenue from Home Care (-1.6% YoY) and Beauty & Personal Care (-0.2% YoY). Domestic consumer business sales grew 3% YoY. The Beauty & Personal Care, Foods and Home Care’s operating margin stood at 29.3%, 16.5% and 20.4%, respectively, vs. 28.9%, 15.9% and 17.7% in Q2FY20.
EBITDA Margin Improvement support by Nutrition Business
Q2FY21 EBITDA rose 17.4% YoY to Rs. 2,869cr, as EBITDA margin expanded 30bps YoY to 25.1% aided by better mix and lower costs. While, gross margin (reduced by ~150bps YoY) remained under pressure due to higher raw material costs for Food & related products, higher sales growth and improved margins from nutrition products helped in improving overall EBITDA margin. Adj. PAT increased 10.3% YoY to Rs. 2,090cr. The exceptional items included restructuring charges of Rs. 69cr and acquisition & disposal related cost of Rs. 17cr and gain on property sale of Rs. 5cr.
Key concall highlights
* Factories & Depots are 100% operational. Supplier service operations are also back to normal despite interim difficulties due to localized lockdowns.
* 2x growth from E-Commerce (YoY Basis) demonstrates the brands’ strength and growth momentum.
* Domestic consumer growth stood at 3% (excluding the impact of GSK’s merger & Vwash’s acquisition).
* The board has approved an interim dividend of Rs.14 per share.
As the virus related uncertainties fade & people start stepping out, demand for the nonstaple products is also expected to improve which in turn provides comfort in terms of revenue & margin growth for the firm. We are optimistic in terms of growth prospects of the firm and hence upgrade our rating on the stock to BUY with a revised target price of Rs. 2,440 based on 57x FY22E adj. EPS.
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