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Steady performance; long term growth intact

Steady revenue growth while better margins QoQ: HUL posted revenue of Rs 15,597cr, growth of 3% QoQ and 16.1% YoY with an underlying volume growth of 5% driven by demand for its products, market share gains in 75%+ portfolio and innovations.

Margins improved QoQ but muted YoY: HUL’s gross /EBITDA profits grew by 7.8% and 6.2% QoQ as well as margins saw an improvement of 214bps and 71bps QoQ as there was moderation in raw material cost and focus on premiumization as well as cost optimization measures taken by the company. Thus, gross and EBITDA margins came in at 48% and 23.7% for Q3FY23. However, comparing YoY numbers, its gross/EBITDA profits grew by 6.6%/8.4% YoY but its margins still remain impacted as compared to last year and saw a decline of 427bps and 168bps YoY.

Home care segment drove the growth: The company’s home care segment witnessed a strong double digit volume and revenue growth. Its revenue stood at Rs 5,514cr, up by 31.5% YoY and 7.2% QoQ. Its % as net sales improved by 416bps YoY and 140bps QoQ. Amongst the segment, healthy demand and growth in fabric wash, liquids and household care drove the growth. Further, home care segment contribution in terms of profits improved by 463bps YoY and 448bps QoQ to 32.1%

Mixed performance of Beauty & Personal Care: HUL’s beauty and personal care segment is the highest contributor both in terms of revenue and profitability which witnessed a decline in share to 37% and 42.6% share, respectively. Its revenue grew by 10.6% YoY and 3% QoQ to Rs 5,764cr led by skin cleansing and steady growth in hair and oral care segment. Also, its non-winter portfolio continued to deliver double digit growth led by innovations and consistent demand. However, delayed winter impacted growth in Skin Care segment. Further, with softening in Palm Oil, the company cut price in soaps portfolio.

Foods, Coffee and ice-cream led the growth of Food & Refreshments: HUL’s F&R segment grew by 6.8% YoY and declined 1.5% QoQ to Rs 3,700cr and its profits grew by 2.3% YoY and declined 11.2% QoQ. Further, its share in revenue (23.7%) and profit (19.4%) declined by 207bps and 116bps YoY and 107bps & 376bps QoQ, respectively. Its YoY growth was driven by robust performance of double digit growth across its Foods, Coffee and Ice-cream segments.

Outlook & Valuation: HUL posted decent numbers for Q3FY23 with steady revenue and profits. Management commentary seems positive over its medium to long term growth prospects. We believe it will continue with its leadership position given its strong product portfolio, innovation technique, parent expertise (Unilever), investment behind brands and also improvement in distribution network bodes well. Further, its continuous focus on premiumization, cost optimization measures and abating inflation will help to improve margins. On a financial front, we have estimated its revenue/EBITDA/PAT to grow at 15.8%/17.0%/17.2% CAGR over FY22-25E. We have maintained a Buy rating and a target price of Rs 3,068 and assigned a PE multiple of 50x on FY25 EPS

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