Reduce Hindustan Unilever; target of Rs 380: PINC Research

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Reduce Hindustan Unilever; target of Rs 380: PINC Research

PINC Research is bearish on Hindustan Unilever (HUL) and has recommended reduce rating on the stock with a target of Rs 380 in its February 6, 2012 research report.

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RELATED NEWS Buy ICICI Bank; target of Rs 1100: Motilal Oswal Buy Indian Overseas Bank; target of Rs 122: Dolat Capital Buy Dabur India; target of Rs 122: R K Global ALSO READ See previous views by PINC Research See what other Experts & Brokerages are saying about HUL See messages about HUL HUL BSE | NSE 01/06/12 Are Mutual Funds betting on HUL?

PINC Research is bearish on Hindustan Unilever (HUL) and has recommended reduce rating on the stock with a target of Rs 380 in its February 6, 2012 research report.

"Hindustan Unilever (HUL) reported lower than expected net sales growth of 16.4% (PINCe 18.2%) led by ~9% volume growth. 'Soaps and Detergents' clocked strong growth of 20.7% (PINCe 16.5%) while slower growth in 'Personal Products (PP)' at 13.9% (PINCe 18.5%) has surprised us as we were expecting skin care products would clock strong growth due to seasonal benefits. Softening of key commodity prices and recent price hike on key brands expanded gross margin by 170bps on QoQ basis. Besides, lower than expected A&P spend (were at 11.6%, Q3FY11 14.5%, PINCe 12.7%) helped EBITDA margin to expand by 221bps YoY & 161bps QoQ and were at 16.3% (PINCe 15.1%). Reported PAT grew by 18% YoY to Rs7.5bn (PINCe Rs7.1bn) while adjusting for exceptional items in Q3FY11 and Q3FY12, adjusted PAT growth were at 30% to Rs7.6bn."

"HUL registered slower PP growth of 13.9% on account of overall slower consumer demand as well as higher competitive pressure. Most of the FMCG player faced demand pressure for the personal care products during Q3FY12. Besides, rising competitive pressure especially from L'Oreal and P&G also impacted the growth rate. Soaps and detergents segment clocked strong growth of 13%, 22% and 21% in the past three quarters owing to price hike on key brands and consistent re-launches in the soaps portfolio. We believe higher soaps' contribution in sales helped in expanding the PBIT margin by 570bps YoY and 110bps QoQ. HUL reported 221bps YoY and 161bps QoQ expansion in EBITDA margin as A&P spend were lower by 287bps YoY and flat QoQ. As most of the FMCG companies increased A&P spend during Q3FY12, we believe HUL's A&P spend at 11.6% is not sustainable and expect rise in A&P spending in coming quarters."

"We believe business development through higher involvement of the top management at the field level and EBITDA margin expansion due to price hike and softening of commodity prices are factored in the CMP. We maintain our 28x P/E at 12-month forward earnings and raise TP to Rs380 (earlier Rs371). We retain 'REDUCE' rating on the stock," says PINC Research report.  

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To read the full report click on the attachment