Hold Hindustan Unilever; target of Rs 1550: JM Financial

JM Financial’s research report on Hindustan Unilever

HUL delivered another strong quarter but that is somewhat par for the course now, considering its recent results delivery plus the stocks heady valuation (59x NTM EPS). There was no massive surprise element this time round, though, to drive another leg of decisive upmove from an already elevated level, in our view. The stock had rallied 8-10% each after 2Q-3QFY18 results and up a massive 16% between 4QFY18 report and now – we expect reaction to be more lukewarm this time round, given that there was nothing in 1QFY19 report to prompt another round of earnings-upgrade. Key numbers: 12% volume growth (base volume was flat implying 2-year volume CAGR of 5.8% vs 7.4% for 4QFY18; 3QFY18 was 3.2%), 16% comparable sales growth and 100bps of comparable margin expansion.

Outlook

Growth was more broad-based this time round with double-digit volume growth across divisions but Home-care was again the key performance driver (6th consecutive quarters of >25% EBIT growth) while Personal Care underperformed relatively (LTL margin down for the 4th quarter running). Delivery-engine remains well-oiled but stock is priced for perfection.

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First Published on Jul 18, 2018 05:02 pm