Result Analysis: Hindustan Unilever Ltd.

Result Highlight:

• HUL Ltd Consolidated Revenue rose01% QoQ and 10.33% YoY to ₹ 13439 crore. Other income rose 13.21% QoQ to ₹60 Crore.

• Company reported EBITDA at Rs. 3279 cr with margins of 24.40%; Raw Material cost as % of revenue is 29.94%.

• Net profit saw a degrowth of 16.76% YoY to ₹ 2243 crore for the December quarter compared with ₹ 1921 crore in the same quarter last Domestic Consumer Growth of 11% and Profit After Tax (PAT) growth of 17%, Volume Growth at 2% was significantly ahead of the market.

• Home Care growth at 23% was broad based with strong performance in Fabric Wash and Household Care. Fabric Wash grew in strong double-digits with all parts of the portfolio performing well.

• Beauty & Personal Care grew 7% led by Skin Cleansing, Skin Care and Colour Cosmetics

• Foods & Refreshment grew 3% on a very high prior year comparator, driven by solid performance in Tea and Ice-creams

Management commentary: 

• Sanjiv Mehta, Chairman and Managing Director commented: ‘We have delivered a strong and resilient performance in the quarter despite moderation in market growths and significant levels of commodity inflation. I am particularly pleased that the growth is extremely competitive with our market share gains being highest in more than a decade. Our performance is reflective of our strategic clarity, strength of our brands, operational excellence, and dynamic financial management of our business. In the near-term, operating environment will continue to remain challenging. In this scenario, we will manage our business with agility, continue to grow our consumer franchise whilst maintaining our margins in a healthy range

• Management said Clearly, we are now seeing a slowdown happening in rural areas from a volume and value perspective.

• Gross margin likely to remain under pressure; because of the rise in material cost but Judicious pricing actions coupled with cost agility and savings programmers will minimize the impact of high cost on margin.

• Our first port of call is to drive very hard savings and then to take calibrated price hikes,” Ritesh Tiwari, chief financial officer at HUL said during the call, suggesting that the company could undertake more price hikes in the current quarter.

• Total revenue growth came at 11% out of which 2% was volume growth and 9% was price growth

• Management said rural market demand is slowing down because of inflation and urban market demand is picking up.

• HUL is making huge investment in new innovative product which are expected to hit market in coming quarter.

• Ocean Freight cost is also having an impact on margins as ocean freight is up 3x from last year, crude is 1.8x and palm oil is up 1.6x from last year.

• HUL chief suggested that the government should not only continue the current outlay on the Mahatma Gandhi National Rural Employment Guarantee Scheme, which provides guaranteed 100 days of employment in rural areas but perhaps look at increasing it.

• On the ongoing inflation in commodities, the soap-to-shampoo maker warned that raw material costs will firm up further in the March quarter but it expects to maintain its operating margins in a healthy range.

OUTLOOK

HUL Q3FY22 result was mostly inline to the street expectation volume growth was in line with the market expectation of 2% ,domestic growth was at 11% Revenue grew 10.33% of which 9% was price growth and 2% was volume growth PAT came in at ₹ 2243 crore, EBITDA margin was flat compared to last year at 24.4%. Company has manage margin well, as there raw material cost has moved up sharply, around 15% of total revenue come from digital market. HUL has gained market share in many segment and are expected to launch new products in coming quarter, management said rural market is slowing because of inflation pressure and government must support rural market in this budget We believe margin may come under little pressure due to palm oil prices, crude prices and ocean freight cost and management has said that they are going to further raise price and will be maintaining their margin. At the CMP of ₹2261, HUL is trading at PE multiple of 56x. Valuing the company at 58x FY23E EPS, we recommend buy on HUL at CMP of for the Target Price of ₹ 2780.

Source: BSE, Bloomberg Quint, EW Research

Disclosure in pursuance of Section 19 of SEBI (RA) Regulation 2014

Elite Wealth Limited does/does not do business with companies covered in its research reports. Investors should be aware that the Elite Wealth Limited may/may not have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only information in making their investment decision and must exercise their own judgment before making any investment decision.
For analyst certification and other important disclosures, see the Disclosure Appendix, or go to www.elitewealth.in. Analysts employed by Elite Wealth Limited are registered/qualified as research analysts with SEBI in India.( SEBI Registration No.: INH100002300)
Disclosure Appendix
Analyst Certification (For Reports)
Israil Khan, Elite Wealth Limited, suhail@elitewealth.in
The analyst(s) certify that all of the views expressed in this report accurately reflect my/our personal views about the subject company or companies and its or their securities. I/We also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Unless otherwise stated, the individuals listed on the cover page of this report are analysts in Elite Wealth Limited.
As to each individual report referenced herein, the primary research analyst(s) named within the report individually certify, with respect to each security or issuer that the analyst covered in the report, that:
(1) all of the views expressed in the report accurately reflect his or her personal views about any and all of the subject securities or issuers; and
(2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in the report.
For individual analyst certifications, please refer to the disclosure section at the end of the attached individual notes.
Research Excerpts
This note may include excerpts from previously published research. For access to the full reports, including analyst certification and important disclosures, investment thesis, valuation methodology, and risks to rating and price targets, please visit www.elitewealth.in.
Company-Specific Disclosures
Important disclosures, including price charts, are available and all Elite Wealth Limited covered companies by visiting https://www.elitewealth.in, or emailing research@elitestock.com with your request. Elite Wealth Limited may screen companies based on Strategy, Technical, and Quantitative Research. For important disclosures for these companies, please e-mail research@elitestock.com.
Options related research:
If the information contained herein regards options related research, such information is available only to persons who have received the proper option risk disclosure documents. For a copy of the risk disclosure documents, please contact your Broker’s Representative or visit the OCC’s website at https://www.elitewealth.in
Other Disclosures
All research reports made available to clients are simultaneously available on our client websites. Not all research content is redistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your respective broker’s sales person.
Ownership and material conflicts of interest Disclosure
Elite Wealth Limited policy prohibits its analysts, professionals reporting to analysts from owning securities of any company in the analyst’s area of coverage. Analyst compensation: Analysts are salary based permanent employees of Elite Wealth Limited. Analyst as officer or director: Elite Wealth Limited policy prohibits its analysts, persons reporting to analysts from serving as an officer, director, board member or employee of any company in the analyst’s area of coverage.
Country Specific Disclosures
India – For private circulation only, not for sale.
Legal Entities Disclosures
Mr. Ravinder Parkash Seth is the Managing Director of Elite Wealth Ltd (EWL, henceforth), having its registered office at Casa Picasso, Golf Course Extension, Near Rajesh Pilot Chowk, Radha Swami, Sector-61, Gurgaon-122001 Haryana, is a SEBI registered Research Analyst and is regulated by Securities and Exchange Board of India. Telephone:011-43035555, Facsimile: 011-22795783 and Website: www.elitewealth.in
EWL discloses all material information about itself including its business activity, disciplinary history, the terms and conditions on which it offers research report, details of associates and such other information as is necessary to take an investment decision, including the following:
1. Reports
a) EWL or his associate or his relative has no financial interest in the subject company and the nature of such financial interest;
(b) EWL or its associates or relatives, have no actual/beneficial ownership of one per cent. or more in the securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance;
(c) EWL or its associate or his relative, has no other material conflict of interest at the time of publication of the research report or at the time of public appearance;
2. Compensation
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) EWL or its associates have not managed or co-managed public offering of securities for the subject company in the past twelve months;
(c) EWL or its associates have not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(d) EWL or its associates have not received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months;
(e) EWL or its associates have not received any compensation or other benefits from the Subject Company or third party in connection with the research report.
3 In respect of Public Appearances
(a) EWL or its associates have not received any compensation from the subject company in the past twelve months;
(b) The subject company is not now or never a client during twelve months preceding the date of distribution of the research report and the types of services provided by EWL