Buy Hindustan Unilever; target of Rs 2900: Sharekhan

Sharekhan's research report on Hindustan Unilever

HUL’s Q3FY2023 performance was ahead of our as well as street expectation, with revenue/PAT growing by 16% and 12%, respectively (with 5% volume growth). OPM expanded by 33 bps q-o-q to 23.2%. Moderating inflation will aid recovery in volume-led growth in the coming quarters, while price-led growth will taper off. The board has approved an 80-bps increase in royalty charges to 3.45% for a period of five years from 2.65% earlier (done in 2013). This will lead to increased other expenses and moderate margin expansion.

Outlook

The stock is trading at 55x/47x its FY2024/FY2025E earnings. Overhang of royalty hikes after five years would reflect in some trim down on the valuation multiple. Long-term growth story remains intact. We retain Buy with a reduced TP of Rs. 2,900.