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Strong performance…

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

• Q4FY22 standalone revenue up 11.0% YoY to Rs. 13,462cr (+2.8% QoQ), driven by calibrated pricing actions to combat inflationary pressures.

• EBITDA margin contracted 30bps YoY to 24.1%, largely owing to higher cost inflation and increased A&P spends. Adj. PAT grew 6.6% YoY to Rs 2,269cr (-1.7% QoQ).

• We expect HUL’s strategic clarity, the strength of their brands, aggregation progress and agility and adaptability will drive superior business performance in the coming months. Hence, we reiterate our BUY rating with a revised TP of Rs. 2,620 based on 56x FY24E Adj. EPS.

Calibrated pricing actions continue to aid topline growth

Standalone revenue grew 11.0% YoY to Rs. 13,462cr (+2.8% QoQ) in Q4FY22, aided by product price increases to offset input cost inflation, but was below expectations. However, consumers are tightening volumes and essentials are being prioritized over discretionary categories. Among its verticals, Home Care segment recorded 23.7% YoY growth in sales to Rs. 4,750cr (+13.3% QoQ), largely driven by strong broad-based performance in fabric wash and household care. Beauty & Personal Care (BPC) segment grew 3.6% YoY to Rs. 4,712cr (-8.9% QoQ), led by strong double-digit growth in skin care and hair care. Foods & Refreshment (F&R) segment rose 5.3% YoY to Rs. 3,698cr (17.1% QoQ), due to solid performance in tea business and ice creams.

Margins maintained in healthy range

In Q4FY22, EBITDA grew 9.7% YoY to Rs. 3,245cr (-1.0% QoQ), with EBITDA margin contracting 30bps YoY (-90bps QoQ) to 24.1%, mainly due to increased input cost inflation and higher A&P spends, which stood at 9.58% and higher other expenses at 11.8% of sales. EBIT margin for Home Care, BPC and F&R verticals stood at 19.8%, 26.2% and 19.3%, respectively vs. 21.0%, 27.9% and 19.0% in Q3FY22. Adjusting for exceptional items, PAT grew 6.6% YoY to Rs. 2,269cr (-1.7% QoQ)

Key highlights

• In FY22, HUL has crossed Rs. 50,000cr turnover mark on account of strong marketing and R&D capabilities that enables them to quickly pick up consumer trend and addressment.

• Market share gain this year is the highest YoY market share gain HUL has seen in more than a decade.

• In calendar year 2021, HUL have become plastic neutral, by having collected and safely disposed more plastic waste than what they use in packaging finished products.

• HUL has won several awards in FY22: 31 awards for various media campaigns, including Best Media Client of the Year.

Valuation

Trusted brands, wide portfolio, agile and flexible supply chain, and growing consumer franchise augur well for the company to protect its business model in the long term. Strong marketing and R&D capabilities, leading digital transformation along with calibrated pricing actions to combat input cost inflation will enable the firm to grow its consumer franchise. Hence, we reiterate our BUY rating with a revised target price of Rs. 2,620 based on 56x FY24E Adj. EPS.

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