Accumulate Hindustan Unilever; target of Rs 2716: KR Choksey

KR Choksey recommended accumulate rating on Hindustan Unilever with a target price of Rs 2716 in its research report dated January 23, 2024.

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January 24, 2024 / 18:08 IST

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KR Choksey's research report on Hindustan Unilever

HUVR reported revenue from operations of INR 1,55,670 Mn, a decline of 0.2% YoY/ 0.4% QoQ. Revenue was 2.3% lower than our estimates as all 3 revenue segments saw muted growth or decline on a YoY basis. Revenue for Home Care (HC) declined by 1.3% YoY while Beauty & Personal Care (BPC)/ Foods & Refreshments (F&R) revenue grew by 0.3%/ 0.9% YoY, respectively. On a 9MFY24 basis, revenue grew by 2.9% YoY to INR 4,66,860 Mn. • Volume growth for the quarter was 2.0% YoY. On a segmental basis, volumes for HC and BPC grew in the mid-single digits while that for F&R declined in the low single digits. • EBITDA for Q3FY24 declined by 0.8% YoY/ 3.5% QoQ to INR 36,660 Mn. EBITDA was lower than estimated by 4.8% due to higher pressure on gross margins and higher than estimated other expenses. EBITDA margin contracted by 13 bps YoY/ 75 bps QoQ to 23.5%. For 9MFY24, EBITDA growth was at 5.2% YoY to INR 1,11,280 Mn while EBITDA margin expanded by 52 bps YoY to 23.8%. • PAT for the quarter was at INR 25,090 Mn, a growth of 1.4% YoY but a decline of 5.5% QoQ. The exceptional item in the quarter was for restructuring expenses of INR 300 Mn. Adjusting for this and exceptional items in comparable periods, Adj. PAT was at INR 25,390 Mn, a decline of 1.5% YoY/ 4.6% QoQ. Adj. PAT was lower than our estimate by 7.7% due to the lower operating performance and ~100 bps higher tax rate in the quarter (27.2% vs. 26.2% in H1FY24). For 9MFY24, PAT grew by 2.6% YoY to INR 77,190 Mn while Adj. PAT grew by 5.2% YoY to INR 77,910 Mn.

Outlook

We expect Revenue/ EBITDA/ Adj. PAT to grow by 6.8%/ 8.3%/ 8.8% CAGR over FY23-26E. HUVR’s share price is currently trading at 57.5x/ 51.3x/ 45.5x its FY24E/ FY25E/ FY26E EPS. We believe the current valuation prices in the near-term growth and higher competition concerns. We roll over our valuation to FY26E and assign a P/E multiple of 50.0x (from 53.0x on FY25E EPS earlier) to FY26E EPS of INR 54.3 to arrive at a target price of INR 2,716 per share (INR 2,778 per share earlier) with an upside of 10.0%. Accordingly, we maintain an ‘ACCUMULATE’ rating on the shares of Hindustan Unilever Ltd.

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