Mr. Amnish Aggarwal - Director - Research at Prabhudas Lilladher.
Quick Pointers:
- Domestic consumer growth at 10% with flat underlying volumes
- Near term growth to be price led, margins to decline given RM inflation
HUL has given cautious commentary in 4Q22 as high input costs and inflation will continue to weight on volume growth and margins in 1H23. 4Q22 displayed flat volumes despite mid-single digit volume growth in Fabric wash, showing growth concerns in BPC portfolio. Near term margin headwinds are likely to sustain due to 1) inflationary environment in commodity basket. 2) down trading of products across categories 3) rising gap between realisations vs commodity prices. However, we remain positive on the longer term structural story given 1) sustained market share gains 2) strong innovation pipeline 3) scale up in emerging categories (Green Tea, Fabric Conditioner, Liquid Detergents, Liquid Dishwash, Hair conditioner) 4) distribution gains from strategies like WIMI and SHIKHAR and 5) faster growth in premium portfolio (2x than company growth).
We expect 11.0% Sales and 13.6% PAT CAGR over FY22-24 and assign a DCF based target price of Rs 2384 (Rs 2356 earlier). We have marginally increased our FY23/24 EPS by 0.7%/1.2% on calibrated price hikes & cost synergies. Risk reward is favorable at 44x FY24 EPS and ~2% dividend yield, however we expect the returns to be back ended given near term volume pressures and volatility in Input costs. Retain Buy.
Volumes flat, Revenues up 11%: Revenues grew by 11% YoY to Rs134.6bn with flat volumes. Gross margins contracted by 301bps YoY to 49.5%. EBITDA grew by 9.7% YoY to Rs32.5bn. A&P expenses declined by 8.7% YoY to Rs12.9bn. Adj PAT grew by 7.9% YoY to Rs22.7bn. Home Care sales grew 23.7% YoY; EBIT grew 15.6% YoY; while margins contracted 138bps YoY to 19.8%. Personal Care revenues grew 3.6% YoY; EBIT declined 1.3% YoY; while margins contracted 129bps YoY to 26.2%. Food & Refreshment revenues grew 5.3% YoY; EBIT grew 24% YoY; while margins expanded by 290bps YoY to 19.3%. Others revenues grew 30.2% YoY. EBIT grew 39.1% YoY; while margins expanded 205bps YoY to 31.8%.
Concall Takeaways: 1) Inflationary environment & rural slowdown continue to impact volumes, higher Agri output and prices can boost demand if inflation stabilizes. 2) 30% of business comes from Rs1/5/10 packs. Grammage reduction in these packs impacted volumes by 2/3%. 3) HUL is developing bridge packs at new price points which would help provide better value to consumers and support volumes 4) 20% of portfolio comprising of premium products grew at 2x of company's overall growth rate. 5) near term growth will be led by price hikes 6) Increasing price vs cost gap will impact margins in near term. 7) Palm oil prices to remain volatile in near term. 8) Expect inflationary environment to sustain in 1HFY23. 9) B2B app: 'Shikhar' ended FY22 with 800k stores (added 1000 stores daily in FY22)
Shares of Hindustan Unilever Limited was last trading in BSE at Rs. 2241.80 as compared to the previous close of Rs. 2144.25. The total number of shares traded during the day was 121074 in over 8842 trades.
The stock hit an intraday high of Rs. 2249.90 and intraday low of 2165.55. The net turnover during the day was Rs. 268595315.00. |
