Hindustan Unilever Ltd - Re-iterate HOLD - RK Global

HUL's top-line numbers (Rs.59,376 mn) were ~6% ahead of our expectation of Rs.55,798 mn. However, PAT saw a ~18% YoY growth over price hikes but saw depletion by ~24% at Rs.7,538 mn from our expected numbers (Rs.9,862 mn) due to losses under exceptional items category. Domestic business grew by ~16.5% with strong underlying volume growth of ~9%. All segments delivered double digit growth in Q3FY'12, except PureIt that fell by ~11.6%.

HUL, India's largest FMCG Company reported net revenues of Rs.59,376 mn, up ~16.4% YoY in the three-month period ending Dec-CY'11, another strong quarter of competitive growth with improvement in margins. The results, delivered against a backdrop of an uncertain economic environment, are reflective of the strength of HUL's brands, consistency in our strategy and relentless focus on execution. Volume growth for the Q as we see was very strong at ~9.1%. We think, there was a little disappointment because we were expecting a double digit volume growth. Though, Unilever Global (HUL's parent firm) stated earlier that volume growth in India has been in double digits, but it failed to show that in this Q. In Q3FY'12, HUL had a restructuring cost of Rs.123 mn (exceptional items), which saw the profits bottoming out. In Q3FY11, it had restructuring costs of Rs.8.5 mn, profit on sale of properties of Rs.492 mn and Rs.159 mn profit on sale of long term trade investments.

EBIDTA rose by ~34% YoY, OPM has inclined by 220 bps to ~16.3% due to fall in ASP cost by 280 bps to ~11.6% and other expenditure by 120 bps to ~15.3% of adjusted revenue. However there was rise in raw material and packaging material cost by 310 bps to ~39.6% of adjusted revenue. Raw material costs for the maker of Lux soap, Surf detergent and Bru coffee, in the quarter rose ~21% to Rs.23,411 mn. The operating profit inclined by ~34% to Rs.9,704 mn. PBT inclined by ~21% to Rs.9,809 mn. There was an exceptional expense of Rs.123 mn which includes restructuring costs. Tax outgo has increased by ~32% to Rs.2,271 mn. PAT rose by ~18% to Rs.7,538 mn.

Valuation & Outlook: Upside chances galore over price hikes

Moderating inflation (presently) will be one of the triggers that will impact the earnings. Therefore, we have raised our earnings estimates. The stock is trading at a P/E & P/BVPS of ~24.4x and ~11.1x of FY'13E EPS & BVPS. We re-iterate a HOLD, revising our earlier TP of Rs.417 to Rs.429 (potential upside of ~8.9% from current levels), factored over the P/E** & P/BVPS** of ~26.8x and ~15.1x respectively, using FY'13E EPS & BVPS of Rs.16 and Rs.35 respectively.

Source : Equity Bulls

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