Hindustan Unilever share price: Retain ‘BUY’ rating with a target price of Rs 2805 on HUL
The ongoing year holds great promise for Hindustan Unilever (HUL) vis-a-vis CY20. In spite of sharp inflation in raw materials, Edelweiss expects its EBITDA margin in Q4FY21 to be flat QoQ and improve 150bp YoY. Edelweiss expects HUL to post 14% YoY volume growth (ex-GSK) and 18% YoY sales growth during the quarter. Staples market continued to revive in January and February aided by recovery in detergents, cosmetics, ice creams, skin creams, etc.
The ongoing year holds great promise for Hindustan Unilever (HUL) vis-a-vis CY20. In spite of sharp inflation in raw materials, Edelweiss expects its EBITDA margin in Q4FY21 to be flat QoQ and improve 150bp YoY. Edelweiss expects HUL to post 14% YoY volume growth (ex-GSK) and 18% YoY sales growth during the quarter. Staples market continued to revive in January and February aided by recovery in detergents, cosmetics, ice creams, skin creams, etc. Resilience in rural growth is sustaining while large towns too are returning to growth. The GSK portfolio may sag in Q4FY21/Q1FY22 (although still growing YoY) due to IT integration. Given an improving portfolio mix, uptick in headline volume growth and price hikes, Edelweiss expects the stock to re-rate. Retain ‘BUY’. Hindustan Unilever share price today is Rs 2363, up Rs 11 or 0.5%.
Headline growth numbers to perk up for entire CY21 of HUL:
Edelweiss estimated HUL, ex-GSK portfolio, will post 14% YoY volume growth and 18% YoY sales growth with 150bp YoY EBITDA margin expansion in Q4 FY21. Laggard segments such as detergents, cosmetics, ice creams and skin creams are likely to bounce back strongly as confined living reduces. The hygiene segment, which gushed ahead owing to the pandemic-induced tailwind, is normalising while the GSK portfolio may sag in Q4FY21/ Q1FY22 (although still growing YoY) due to IT integration-related issues. This does not impact end-demand though, and once the implementation is over, the company should benefit from a rush for inventory refilling. In the nutrition portfolio, HUL is focusing on sachets to deepen category penetration.
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Sharp inflation augurs market share gains and price hikes:
Palm oil has shot up 40–50% and crude oil by 50% over the past few quarters. Soap players have already hiked prices by 5–6%, and another round of a 3% hike is likely. Edelweiss expect HUL to gain market share from regional players in soaps and tea. The company’s fundamentals remain strong with 86% of business gaining penetration. Edelweiss expects HUL to take select price hikes in the rest of the portfolio to overcome packaging cost inflation. Hindustan Unilever has managed to protect/improve EBITDA margins every year, and Edelweiss expect that trend to continue
HUL Outlook and valuation: On a firm footing; maintain ‘BUY’
The full-year CY21 makes for a favourable base for HUL. Edelweiss remains positive on its ability to outgrow the market, and on its pricing power underpinned by distribution expansion, deepening direct reach and product innovation initiatives. The ongoing demand shift from smaller players to HUL will continue, particularly in tea and soaps.
The merger of GSK portfolio with HUL has begun to yield revenue delta; Edelweiss believes the larger story will be innovation and new products in HFD and allied categories. Edelweiss expects HUL to be a key beneficiary of rural demand and recovery in out-of-home consumption. In terms of the covid-19-related impact, we believe the worst is behind and, hence, expect volumes and earnings to improve. Retain ‘BUY/SO’ with a target price of Rs 2805. The stock is trading at 54.3x FY22E EPS.
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