Hold Hindustan Unilever: target of Rs 2600: ICICI Direct
ICICI Direct recommended hold rating on Hindustan Unilever with a target price of Rs 2600 in its research report dated January 28, 2021.
February 04, 2021 / 02:09 PM IST
ICICI Direct's research report on Hindustan Unilever
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 thesales growth however, overhead spends saw increase of 72 bps (% to sales)during the quarter. Operating profit increased by 16.7% to Rs2853 crore &operating margins contracted by 88 bps to Rs 24.1%. Led by higher operatingprofit, net profit grew 18.8% to Rs 1920 crore.
We change our recommendation from BUY to HOLD with a revised target price of Rs 2600/share (earlier Rs 2500).
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