Reduce Hindustan Unilever; target Rs 393: Dolat Capital

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Reduce Hindustan Unilever; target Rs 393: Dolat Capital

Dolat Capital is bearish on Hindustan Unilever (HUL) and has recommended reduce rating on the stock with a target price of Rs 393 in its November 1, 2011 research report.

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Dolat Capital is bearish on Hindustan Unilever (HUL) and has recommended reduce rating on the stock with a target price of Rs 393 in its November 1, 2011 research report.

"Hindustan Unilever (HUL)'s Q2FY11 results beat our and street expectations with net sales at Rs56.1bn (Dolat est: Rs  54.6bn), up 17.8% YoY. Domestic FMCG business grew by 19.8% YoY driven by strong growth in Soaps and Detergents. We ere positively surprised by a strong volume growth at 9.8% (14% in Q2FY11). Gross margins declined by 347bps YoY due to higher raw material price. EBITDA margins expanded by 116bps to 14.7% on account of lower ad-spend and overheads. EBITDA at Rs 8.3bn was up 28% YoY. Adj PAT at Rs  6.5bn up 22.2% (Dolat est: Rs  5.8bn)."

"Ad spend remain flat at Rs  6.5bn and was down 196bps YoY. Other expenditure grew by 2.8% YoY while as a ratio to sales was down 265bps YoY. Management indicated that cost pressures were managed through aggressive saving programs and price increase. Soaps & Detergent revenue grew by 21.8% to Rs  25.9bn and EBIT increased by 28.4% to Rs  3.2bn as margins expanded by 60bps YoY to 12.4%. The margins are highest in the last six quarters. Lux was re-launched during the quarter and strong double digit growth was witnessed in Laundry business. Personal Products reported a revenue growth of 18.2% to Rs  16.1bn and EBIT at Rs 3.9bn was up 25.5% YoY as margin expanded by 143bps to 24.4%."

"We have revised our estimates upwards by 7-8% to factor in higher volume growth and lower ad spend ratio. We believe in coming quarters the growth rates will improve on account of lower base (H2FY11 PAT grew by 6.5% YoY). While operating performance will continue to show improvement in the coming quarters, the sharp run-up in the stock price leaves little upside. Our revised estimates for FY12E and FY13E now stand at Rs  12 and Rs  14.2 respectively. The stock trades at 31x FY12E and 27x FY13E. We have a target price of Rs  393 and recommend a Reduce," says Dolat Capital research report.

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To read the full report click on the attachment