Hindustan Unilever - Mixed Performance, Expensive Valuations; Maintain 'REDUCE' - TP Rs380 - PINC Research

Q3FY12 Result Review – Hindustan Unilever

Mixed Performance, Expensive Valuations

Hindustan Unilever (HUL) reported lower than expected net sales growth of 16.4% (PINCe 18.2%) led by ~9% volume growth. 'Soaps and Detergents' clocked strong growth of 20.7% (PINCe 16.5%) while slower growth in 'Personal Products (PP)' at 13.9% (PINCe 18.5%) has surprised us as we were expecting skin care products would clock strong growth due to seasonal benefits.

Softening of key commodity prices and recent price hike on key brands expanded gross margin by 170bps on QoQ basis. Besides, lower than expected A&P spend (were at 11.6%, Q3FY11 14.5%, PINCe 12.7%) helped EBITDA margin to expand by 221bps YoY & 161bps QoQ and were at 16.3% (PINCe 15.1%).

Reported PAT grew by 18% YoY to Rs7.5bn (PINCe Rs7.1bn) while adjusting for exceptional items in Q3FY11 and Q3FY12, adjusted PAT growth were at 30% to Rs7.6bn.

- PP slower sales growth of 13.9% surprised us
- Robust 'Soaps and Detergents' sales; PBIT margin at 8-Qtrs high
- A&P at 11.6% not sustainable, Low EBITDA margin is expected

VALUATIONS AND RECOMMENDATION

We believe business development through higher involvement of the top management at the field level and EBITDA margin expansion due to price hike and softening of commodity prices are factored in the CMP. We maintain our 28x P/E at 12-month forward earnings and raise TP to Rs380 (earlier Rs371). We retain 'REDUCE' rating on the stock.

Source : Equity Bulls

Keywords