Hindustan Unilever (Unilever hints at high cost inflation) - Motilal Oswal

HINDUSTAN UNILEVER: Unilever concall indicates high input cost inflation in CY11; Demand scenario softening; Focus on volume growth to continue; Neutral

Unilever reported 5.8% volume growth in CY10, led by double digit volume growth in emerging markets like China, India and Turkey.

Management expects some moderation in volume growth on back of slowdown in key developing economies like China and India.

Unilever has increased focus on innovations with fewer, but bigger innovation projects which will reach more markets/geographies in quick succession.

We highlight that the emphasis on volume growth and category expansion has boosted volume growth.

We see rising significance of emerging markets like India as future growth drivers. Unilever management expects lower volume growth in India given inflationary pressure (high teens food inflation resulting in rising interest rates) and high base effect. We expect HUL to focus on driving volumes and market share gains over profit margins in the near term. The stock trades at 26.2x FY12E and 23.1x FY13E. Maintain Neutral with a target price of Rs261 (22x FY13E).

Source : Equity Bulls

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