Buy Hindustan Unilever Limited For Target Rs.3,000 - Anand Rathi Share and Stock Brokers
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Hindustan Unilevers’ Q4 FY23 belied Street estimates: revenue grew 11% y/y and profit 9% y/y as price hikes faded while volume growth was tepid (4%, vs. 5-6% estimated). While softer input costs can continue to provide margin respite in coming quarters, volume uptick is seen slower than earlier anticipated as rural demand is still weak and price-value equations re-balance gradually. We have slightly tweaked our figures to reflect the Q4 miss in estimates. However, the company’s agility, wide
distribution, digital and analytics eco-system provide it with an edge over its peers to drive growth. Hence, we maintain our Buy rating with a 12-mth TP of Rs3,000 (55x FY25e EPS).
Pricing growth fades in Q4 with just 7% increase vs. ~12% in H1 FY23. The four-year revenue CAGR was 10.6%. Home care reported an 18% y/y rise in revenue but a 100bp y/y drop in EBIT margins. Personal care posted a 10% rise in revenue and a 15bp y/y drop in margins, while Food & Refreshments posted 3% growth and a 140bp y/y drop in margins. We are building in a 10% revenue CAGR over FY23-25, aided by an 11% CAGR in Home care and Personal care each.
Gross margin improves 120bps sequentially. The gross margin was down 80bps y/y as raw material cost (up 9% y/y) was higher than the price increase (up 7%). A&SP spend was 90bps lower y/y, which partly offset the EBITDA margin contraction. We are still optimistic of margin betterment in coming quarters, aided by softer input costs (palm & crude oil falling 20-40%), partly offset by increases in brand investments and promotions. Thus, we expect the EBITDA margin to expand 110bps over FY23-25.
Valuations. At the ruling price, the stock trades at 50x FY24e EPS of Rs49 and 45x FY25e EPS of Rs54.4. Key risks: A sharp rise in input costs, price- based competition or loss of market share due to Reliance Consumer entering.
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