Hindustan Unilever (HUL)’s performance for 4QFY2016 was slightly below
consensus expectations. For the quarter, the company’s top-line grew by 3.5% yoy
to Rs7,946cr while the reported PAT grew ~7% yoy to Rs1,090cr.
Key highlights: For 4QFY2016, HUL’s top-line rose by 3.5% yoy to Rs7,946cr on
the back of 4% volume growth. The soaps and detergents division posted a lower
yoy growth due to weak macros. However, in the soaps segment, we saw healthy
volume growth in Dove, Pears, Hamam and Lifebuoy. In the laundry segment,
growth was led by the premium sub-segment, with Surf maintaining its strong
double-digit growth. The personal products division posted a soft growth of 2.8%
yoy as it was impacted by phasing out of excise duty incentives, one-time credit for
excise duty refund in base quarter and residual impact from the re-alignment of
channel spend. In the beverages segment, the company reported a growth of 6%
yoy, primarily led by volumes (tea and coffee products reported strong doubledigit
growth). Packaged food reported ~11% growth during the quarter.
The company posted a strong operating performance for the quarter with the
operating profit reporting a growth of 10.5% yoy. Further, the operating profit
margin increased by 117bp yoy to 18.3% due to lower material costs. On the
bottom-line front, the company reported a net profit growth of 7%.
Outlook and valuation: We expect HUL to post a ~8% and ~8% CAGR in its topline
and bottom-line respectively, over FY2016-18E. At the current market price,
the stock is trading at 38.9x its FY2018E earnings. We maintain our Neutral view
on the stock.

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