Hold Hindustan Unilever Ltd For Target Rs.2,460 - ICICI Direct
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Volume growth to remain muted in medium term…
About the stock: Hindustan Unilever (HUL) is the biggest FMCG company in India with more than 40 brands across categories. It is the market leader in fabric wash, personal wash, cosmetics, shampoos and many other categories.
* The company has a distribution reach of ~8.0 million (mn) outlets with a direct network of more than 3.5 mn
* HUL acquired GSK Consumer Healthcare’s business in 2019 and integrated Horlicks and Boost brands with the foods & refreshment segment
Q3FY22 Results: HUL’s numbers were on expected lines.
* Sales were up 10.4% YoY with muted 2% volume growth
* EBITDA was at | 3279 crore, up 14.9% YoY, with margins at 25%
* Consequent PAT was at | 2243 crore (up 16.8% YoY)
What should investors do? HUL’s share price has gone up by ~2.7x over the past five years (from ~| 856 in January 2017 to ~| 2310 levels in January 2022).
* We expect volume growth to remain dismal in the medium term on high base and grammage reduction
* We maintain our HOLD rating on the stock
Target Price and Valuation: We value HUL at | 2460 i.e. 55x P/E on FY24E EPS
Key triggers for future price performance:
* Synergistic benefits of integration of nutrition business (Horlicks & Boost) to drive cost rationalisation
* Long term premiumisation trend in fabric wash to help sustain margins
* Steep commodity inflation to continue to drive pricing growth but keep margins under check
* In major categories, highest market share gains in more than a decade
Alternate Stock Idea: Besides HUL, we like TCPL in our FMCG coverage.
* Strong innovation & premiumisation strategy in salt, tea, Sampaan & Soulful in Indian market expected to drive sales & margins
* We value the stock at | 910 with a BUY rating
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