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Growth momentum continues; 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.

* HUVR’s Q4FY21 revenue grew by 34.6% YoY to Rs. 12,132cr with double digit growth contribution from all the segments on the back of improved product penetration supported by demand pickup due to improved economic activity.

* EBITDA Margin stood at 24.4% expanding 145bps YoY, despite rising commodity prices, primarily on account of calibrated price revisions.

* Continued strong demand in Rural areas supported by decent urban demand recovery improves the outlook of the business in near-term. Despite uncertainty arising due to increase in COVID cases, we believe the company is well-placed in terms of demand planning & supply chain management. Therefore, we maintain our BUY rating on the stock with a target price of Rs. 2,710 based on 58x FY23E adj. EPS.

Strong recovery in BPC, HC drives revenue growth

HUVR’s revenue grew by 34.6% YoY (+2.3% QoQ) to Rs. 12,132cr, supported by double-digit growth in all the segments and increased penetration in rural markets. Foods & Refreshments (F&R) segment continued the growth momentum (+96.4% YoY to Rs. 3,511cr), on the back of strong demand coupled with good price- volume mix on successful integration of Nutrition business. Beauty & Personal Care (BPC) segment grew by 19.7% YoY to Rs. 4,549cr as mobility increased in most of the cities.

Homecare segment also recovered sharply posting 14.6% YoY revenue growth (Rs. 3,840cr in Q4FY21 vs Rs. 3,350cr in Q4FY20). Operating Margins for BPC, F&R and Home care segments in Q4FY21 stood at 27.5%, 16.4% and 21.1% respectively (vs. 24.9%, 12.6% and 19% in Q4FY20).

Margins remain stable despite raw-material prices hike

In Q4FY21, HUVR’s EBITDA increased by 43.2% YoY to Rs. 2,957cr (vs. Rs. 2,065cr in Q4FY20) along with an expansion of 145bps in EBITDA margin (24.4% vs 22.9% in Q4FY20). However, considering the COVID impact on the base quarter, with a sequential expansion of 31bps, EBITDA margin remains to be largely stable. Adj. PAT grew by 35.0% YoY to Rs. 2,129cr (vs Rs. 1,577cr in Q4FY20).

Key concall highlights

* Board announced a final dividend of Rs. 17 per share in Q4, taking total dividend to Rs. 31 per share for FY21 (excluding Rs. 9.5 per share special dividend).

* E-commerce channel, termed as highly profitable, continued to improve contributing around 6% to the overall revenue in FY21.

* HUVR launched INR2 sachets of Horlicks and Boost to increase market penetration thereby focusing on driving volume.

* Added 350,000 retail outlets on Shikhar, e-B2B app, in FY21.

Valuation

As vaccination drive progresses, we expect the demand growth to continue despite partial lockdowns in some cities. Also, HUVR’s ability to drive volumes supported by decent product portfolio & price- volume mix stabilizes the near-to-medium term outlook. Hence, we maintain our BUY rating on the stock with a revised TP of Rs. 2,710 based on 58x FY23E adj. EPS.

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