IGI Logo

Uptick in volumes to gain market share

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.

* HUL reported a 16.2% YoY increase in revenue in Q3FY23 to Rs. 14,986cr, led by the beauty and personal care and home care segments.

* EBITDA margin improved 30bps QoQ to 23.6% (-180bps YoY) due to a decrease in employee costs and advertising expenses.

* During the quarter, HUL saw robust revenue growth, supported by solid growth in both value and volume terms. Margins improved sequentially, given the price-to-costs gap narrowed as inflation eased. The company continued to gain market share in almost all of its business segments, despite macroeconomic challenges. We reiterate our BUY rating on the stock with a revised target price of Rs. 2,900 based on 52x FY25E adjusted EPS.

Broad-based revenue growth

HUL posted revenue of Rs. 14,986cr (+16.2% YoY) in Q3FY23, supported by increased volume growth (+5% YoY), significantly outperforming the market. The home care segment had another excellent quarter, logging revenue of Rs. 5,518cr (+31.6% YoY, +7.3% QoQ) and double-digit volume growth. Growth was driven by higher prices for the fabric wash and household care portfolios. The beauty and personal care segment grew 10.5% YoY to Rs. 5,718cr (+2.8% QoQ), led by strong value and volume growth in the skin cleansing, as well as other segments. Meanwhile, revenue from the foods and refreshment segment revenue grew 6.8% YoY to Rs. 3,700cr (-1.5% QoQ), led by robust performance in food, ice-cream, and coffee products

Key concall highlights

* The FMCG market has grown 8% YoY, ahead of growth in the previous quarter. Urban markets have continued to lead growth, while rural market growth has somewhat improved on the back of strong winter crop sowing and rising farm incomes.

* HUL’s net material inflation stood at 18%, lower 4% sequentially. However, some key commodities are still elevated on a YoY basis. Soda ash prices rose 40% YoY, and barley prices 35% YoY. Only palm oil prices have fallen 30% YoY

Increase in royalty not a concern

Management has approved new royalty and central services arrangement fee structure that involves an increase from 2.65% to 3.45% (+80bps) of the turnover. The increase will be staggered over the next 3 years, with a 45bps increase from February to December 2023, 25bps from January to December 2024, and 10bps from January 2025. This is expected to impact margins in the near term. However, with the observed moderation in inflation rates, the company, supported by its premiumisation and economies of scale, will be able to offset the impact.

Valuation

The company will continue to gain market share by focusing on increasing volumes by relatively lowering the prices of its products as inflation falls and rural demand increases. Sustainable investments in branding will continue to support growth. Moreover, increasing royalties will not be a cause of concern in the near term. We remain cautiously optimistic on healthy revenue growth and sustainable margins. Hence, we reiterate our BUY rating on the stock with a revised target price of Rs. 2,900 using a target multiple of 52x P/E on FY25E adjusted EPS.

To Read Complete Report & Disclaimer Click Here

For More Geojit Financial Services Ltd Disclaimer https://www.geojit.com/disclaimer 

SEBI Registration Number: INH200000345

Views express by all participants are for information & academic purpose only. Kindly read disclaimer before referring below views. Click Here For Disclaimer