Reduce Hindustan Unilever; target of Rs 2016: HDFC Securities

HDFC Securities recommended reduce rating on Hindustan Unilever with a target price of Rs 2016 in its research report dated July 21, 2020.

Broker Research

July 22, 2020 / 15:26 IST

HDFC Securities' research report on Hindustan Unilever

HUL clocked revenue growth of 4% YoY, primarily led by the GSK acquisition. Its domestic consumer business (ex-GSK) saw a decline of 7% YoY. Growth in the Hygiene & Nutrition business (80% mix) was resilient at 6% YoY, while discretionary (15% mix)/OOH (5% mix) declined by 45/69% YoY. Gross margin dipped 222bps YoY, despite GSK being GM accretive and soft crude basket. However, cost management initiatives supported the EBITDA margin. The company saw sequential improvement in demand in May and June, but overall sentiment remains weak on account of job losses and return of lockdowns in several states. The Discretionary and OOH categories are expected to remain weak in FY21. We maintain our below-consensus EPS estimate for FY21/FY22/FY23.

Outlook

We value HUL at 50x P/E on Jun- 22E EPS and derive a target price of Rs 2,016. Maintain REDUCE on a muted absolute growth trajectory and unfavourable risk-reward.

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