Buy Hindustan Unilever Ltd For Target Rs.2,320 Prabhudas Liladhar Capital Ltd
Demand steady, Input cost volatility to cap margins
We cut our FY27/FY28 EPS estimates by 1.9/1.2% led by
1) less than expected volume growth of 5% consol (4-4.5% standalone)
2) Input cost pressure in soaps/tea requiring price hikes
3) competition/crude led margin pressure in home care
4) likely pick up in ad-spends (80bps cut in 1Q27 ad spends).
HUL is facing competitive pressure in home care and Toilet soaps and has been able to post strong comeback in Beauty and Nutrition business. HUL continues to focus on new channels, premium products and innovations that will enable increased traction across categories. HUL facing 8-10% RM inflation and we expect calibrated price hikes, any increase in crude prices and likely increase in Palmoil prices due to EL Nino remains a risk to margins over coming 2-3 quarters. We estimate a CAGR of 9% in Sales and 8.7% in PAT over FY26-28. We assign DCF based target price of Rs2320 (Rs2454 earlier). We expect some bottom fishing at this level given stock trades at 39.6x FY28 EPS.
1Q Consolidated Volumes grew by 5%, standalone by ~4%
Revenues grew by 9.8% YoY to Rs166.6bn (PLe: Rs171.26bn). Gross margins contracted by 104bps YoY to 48.4% (PLe:49%). EBITDA grew by 8.3% YoY to Rs37.7bn (PLe:Rs38.1bn). A&P Expenses grew by 0.6% YoY (down 80bps YoY) to Rs15.1bn. Adj PAT grew by 9% YoY to Rs26.8bn (PLe:Rs26.9bn).
Home Care grew by 13.4% YoY led by high single digit volume growth in fabric care. EBIT declined by -0.4% YoY; while margins contracted by 230bps YoY to 16.6%. Liquids portfolio continued its double-digit growth trajectory. Vim liquid continues to lead Household care with double digit growth. The segment is facing near-term competitive pressures, which we believe will sustain in coming quarters as well.
Personal Care revenues grew by 3.3% YoY; EBIT grew by 8.7% YoY; while margins expanded by 98bps YoY to 19.5%. Skin cleansing recorded mid-single digit sales growth driven by premium bars. Body wash sustained double digit growth momentum. Oral care grew by mid-single digit with innovations in Closeup and Pepsodent.
Please refer disclaimer at Report
SEBI Registration number is INH000000933.
