Recommendation: Buy
CMP = Rs 251
Price target: Rs 280
Key points:
- Net sales of Hindustan Unilever Ltd's (HUL) grew by 19.1% yoy to Rs 3,793.9 crore. The sales growth was driven by a stupendous performance of the home and personal care (HPC) segment, which grew by 21.2% yoy. The foods segment that contributed 16.1% to the revenues grew by 15.6% yoy, pulling down the overall sales growth.
- The soaps and detergent business put up a strong show with sales growth of 19.9% yoy to Rs 1,738.2 crore and the profit before interest and tax (PBIT) margin of 13.4% (up by 144 basis points yoy). Personal care product business outperformed our expectations with a handsome growth of 23.5% yoy. I believe extended winter, contribution from new launches under the brands Dove and Ponds, and price hikes contributed to the strong growth in the revenues of the segment. The PBIT margin for the segment stood at 24.7% (up by 25 basis points yoy).
- The operating profit margin (OPM) as a whole declined by 70 basis points to 10.75% yoy, mainly due to the increase in the other expenses by 28.3% yoy to Rs 663.5 crore. The raw material cost as a percentage to sales showed a decline of 78 basis points to 54.7%. Hence the operating profit increased by 11.9% yoy to Rs 407.8 crore.
- The other income increased by 126.2% yoy to Rs 77.3 crore leading the earnings before interest, depreciation, tax and amortisation (EBIDTA) to increase by 21.7% to Rs 485.1 crore. As the interest income (net of interest expenses) was lower by 44.1% at Rs 20.1 crore, the increase in adjusted net profit was lesser and stood at 16.7% to Rs 378.4 crore.
- I am optimistic about the performance of HUL's HPC business and pleased by the fact that the company is exploring ways to maintain the growth in the segment by expanding its presence in premium personal care products. At the current market price of Rs 251 the stock trades at 26.8x and 22.9x its CY2008E and CY2009E earnings per share (EPS) of Rs 9.4 and Rs 10.9 respectively.
- I maintain Buy recommendation on the stock with target price of Rs 280.
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