Reduce Hindustan Unilever; target of Rs 2400: HDFC Securities

HDFC Securities' research report on Hindustan Unilever

HUL reported marginally better revenue growth at 16% (HSIE 14%), with volume growth of 5% (HSIE 5%). Three-year revenue and volume CAGRs stand at 11% and 3.5%. Home care remained the showstopper, revenue/EBIT grew by 32/23% YoY. BPC clocked revenue/EBIT YoY growth of 10.5 %/flat and F&R reported 7/2% YoY growth. Consistent above-the-par delivery of home care has been helping the company register better than the industry show (reeling with a single-digit volume decline in the last nine months). GM and EBITDA margin improved sequentially (largely in-line) but tepid YoY, resulting in EBITDA growth of 8% (HSIE 7%). The company also announced an increase of 80bps in the royalty rate (to 3.45%) to be carried over the next three years (an increase of 45/25/10bps each year). With RM softening phase, the royalty increase will not pinch much but will limit the margin expansion.

Outlook

Our view remains the same: demand pick-up will be gradual while margin recovery will be faster. We cut EPS estimate for FY24/25 by 1/2%. We value the stock on 47x P/E on Dec-24E EPS to derive a TP of INR 2,400. Maintain REDUCE.

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