Hindustan Unilever - Dull season continues - IDFC

We recently interacted with Dinesh Thapar, Head, Investor Relations, at HUL. Key takeaways:

- Volume growth to moderate: Industry volume growth continued to moderate in Q4FY14 with the impact being felt across categories and markets. The challenging macro environment, coupled with a high base, would pull down HUL's volume growth too to <4% levels seen in Q3FY14.

- Personal products the worst hit; competitive intensity unrelenting: Downtrading and larger offtake of lower-unit packs should hit personal products volumes the most. We expect the segment to return to single-digit growth in Q4 (from ~12% average in past two quarters). Competitive intensity remains high in key categories (oral care, hair care, skin care, tea and coffee) even as promotional intensity in the laundry segment has reduced.

- Palm oil prices a concern; higher taxes to hit PAT growth: A 15% rise in palm oil prices in two months is a concern going into FY15 though a stable INR provides relief. A higher tax rate in Q4FY14 and FY15 will limit PAT growth.

Industry volume trends continued to moderate in Q4FY14. HUL, the industry proxy, will reflect this slowdown. We expect volume growth to taper further due to the challenging business environment and a high base in Q4. Our concerns on higher competitive intensity and a limited new products pipeline persist. Though the leaner HUL is better equipped to tackle the challenges, current valuations appear expensive given the sedate near-to-medium term outlook. We believe the recent 10% run-up in the stock price is based on speculations of the parent increasing stake. Maintain Neutral with a price target of Rs570.

Source : Equity Bulls

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