HUL reported moderate 4% volume growth in Q3FY21 unlike strong growth for other FMCG companies mainly due to dismal sales in detergent category. The category (contributes ~30% to HUL's sales) has seen a muted sales growth post pandemic as schools & offices are not fully functioning. Further, price hikes in respect to cost inflation in palm oil & tea has been only calibrate & partial. The company has taken two subsequent price hikes of 2.5% in December 2020 & January 2021. Revenue grew by 20.9% to Rs. 11862 crore led by consolidation of acquired nutrition business (Horlicks, Boost). On a like to like basis, sales growth was 7%. Home care segment continue to post muted sales with 1.4% decline. Beauty & Personal care segment witnessed 9.7% revenue growth aided by price hikes taken in personal wash category. Foods category (like to like) witnessed a strong growth of 19% largely driven by price hike in tea & double digit growth in nutrition brands. The company has been able to maintain its gross margin (20 bps contraction) at 54% despite sharp increase (~40% in both) in tea & palm oil prices. It also maintained its advertisement spends at 11.7% which was in line with the sales growth however, overhead spends saw increase of 72 bps (percentage of sales) during the quarter. Operating profit increased by 16.7% to Rs. 2853 crore & operating margins contracted by 88 bps to Rs. 24.1%. Led by higher operating profit, net profit grew 18.8% to Rs. 1920 crore.
Valuation & Outlook
Given the strong growth in nutrition business, judicious price hikes & expected revival in detergent business, we estimate 15.2% revenue growth in FY22E & further 7.8% growth in FY23E. We believe synergetic benefits of acquired nutrition brands would reflect in margin expansion going forward. The stock has seen a run-up recently. We change our recommendation from BUY to HOLD with a revised target price of Rs. 2600/share (earlier Rs. 2500).
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_HUL_Q3FY21.pdf
Shares of HINDUSTAN UNILEVER LTD. was last trading in BSE at Rs.2390.75 as compared to the previous close of Rs. 2398.9. The total number of shares traded during the day was 137939 in over 6537 trades.
The stock hit an intraday high of Rs. 2421 and intraday low of 2334.85. The net turnover during the day was Rs. 326030619.