HINDUSTAN UNILEVER
Reco price: Rs 283
Current market price: Rs 273
Target price: Rs 290
Upside: 6.2%
Brokerage: Enam Securities
Hindustan Unilever (HUL) reported net revenue of Rs 4,200 crore (up 5 per cent y-o-y), EBITDA of Rs 650 crore (up 17 per cent y-o-y) and adjusted PAT of Rs 560 crore (up 29 per cent y-o-y) in the September quarter of FY10. HUL’s revenue performance was below expectations while PAT growth was higher due to tax write backs.
Growth of personal products remains strong (13.4 per cent y-o-y, largely volume-led) with PBIT margins improving 200 bps. Though HUL’s hiked its promotional spends, lower overheads aided EBITDA margin expansion by 166 bps to 15.3 per cent.
HUL’s overall volume growth fell to 1 per cent (2 per cent in Q1) largely due to slowing growth in soaps and detergents despite the initiatives taken by the management.
HUL has managed to improve margins driven by improved sales mix and stringent cost control. This will drive a 165 bps EBITDA margin expansion to 16.5 per cent in FY10E. However, a slowdown in volume growth coupled with a higher tax rate will dampen earnings growth to around 10 per cent y-o-y in FY10E. Given the volume underperformance vis-a-vis peers coupled with market share losses, current valuations seem to be in a fair range. At Rs 290, the stock is trading at 24x FY11E EPS of Rs 12.
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