Hindustan Unilever (HUL)’s performance for 3QFY2014 was slightly below
consensus expectations. For the quarter, the company’s top-line grew by 2.7% yoy
to Rs7,981cr while the reported PAT grew ~6% yoy to Rs1,026cr.
Key highlights: For 3QFY2016, HUL’s top-line rose by 2.7% yoy to Rs7,981cr. The
soaps and detergents division posted a flat yoy growth due to weak macros.
However, in the soaps segment, we saw some growth in Dove, Pears and Lifebuoy
as well as double-digit growth in the liquids portfolio. The detergents segment’s
saw double-digit growth in Surf and Rin. The personal products division posted a
modest growth of 5.6% yoy. The reported growth of this segment was impacted by
delayed winter and owing to one-time realignment of channel spends. In the
beverages segment, the company reported a growth of 7% yoy primarily led by
volumes, which were driven by activations and market development initiatives by
the company.
On the operating profit front, the company reported a de-growth of 0.5% yoy due
to lower sales growth. Further, the operating profit margin fell by 52bp yoy to
16.5% due to increase in advertisement and other expenses. During the quarter,
the company incurred Rs55cr under the exceptional items head, which factored in
provision towards restructuring and sale of properties. After adjusting for it, the
company’s net profit rose by a modest 5.6% yoy to Rs1,026cr.
Outlook and valuation: We expect HUL to post a ~6% and ~6% CAGR in its topline
and bottom-line respectively, over FY2015-16E. At the current market price,
the stock is trading at 37.6x FY2018E earnings. We maintain our Neutral view on
the stock.

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