Motilal Oswal's research report on Hindustan Unilever
While 4QFY22 results were above expectations, management did highlight the likely sequential margin pressures over the next 2-3 quarters. Beat in 4QFY22 was also led by a 220bp decline in ad-spends to sales that may not be a compensating factor going forward. Lower ad-spends to sales helped EBITDA margin surpass our expectations despite lower-than-expected gross margin. Two factors that constrained HUVR’s earnings growth (ex-GSK) over the past two years were escalating material costs and lower-than-expected premiumization. Both these factors are likely to inhibit the company’s 1HFY23E earnings as well. Nevertheless, positive factors can emerge from rural recovery fueled by: a) good Rabi crop, b) good monsoon, and c) sustained agri commodity inflation, unless offset by input cost pressures for farmers.
We remain positive on the stock based on HUVR’s technological edge, nimbleness v/s its FMCG peers and continued impressive market share gains (highest decadal gain witnessed in FY22). Maintain BUY with a TP of INR2,500.
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