ICICI Direct recommended hold rating on Hindustan Unilever with a target price of Rs 1900 in its research report dated January 18, 2019.
ICICI Direct's research report on Hindustan Unilever
Hindustan Unilever (HUL) reported robust set of numbers with revenue growth of 11.3% YoY on the back of 10% volume growth. The strong volume growth has been mainly on account of healthy growth witnessed across all segments in addition to new launches gaining traction. Home care (33% of revenue), personal care (47% of revenue) and foods & refreshments segments (18% of revenue) grew 14.8%, 11% and 9.9%, respectively Operating margins rose 185 bps YoY to 21.4% despite 76 bps contraction in gross margins. EBITDA expansion on the back of employee expenses, marketing expenses and other overheads to sales declined 85 bps, 48 bps and 128 bps, respectively Led by healthy sales growth and strong margins, net profit for the quarter grew 8.9% YoY to Rs 1444 crore. Adjusting for one-offs, net profit would have grown ~15%.
Though the HUL-GSKCH merger would bring in significant synergy benefits, valuations at 50x FY21E provide little headroom for strong upside. Hence, we maintain our HOLD recommendation with a revised target price of Rs 1900.
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