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Centrum Broking
Hindustan Unilever (Add)
Target: ₹2,734
CMP: ₹2,781.85
We interacted with the management of Hindustan Unilever. The company indicated improvement in consumer mobility with growing vaccination and reduction in new Covid cases; yet, as per RBI data, consumer sentiment is weak.
Hindustan Unilever witnessed better demand in July-August than in June. Rural markets remain strong, with better monsoon driving kharif sowing. While (modern trade) MT is not yet back to August 2019 levels, the (general trade) GT channel remained buoyant, driving the discretionary portfolio.
With GTM integration, the GSK-CH portfolio is picking up, backed by market interventions.
The management indicated continued inflation in palm oil and crude.
Though Hindustan Unilever has raised prices in soaps and laundry, high inflation in A&P might restrict EBITDA margin at 24-25 per cent. Given its best-in-class distribution coupled with increased focus on digitisation, we expect HUVR to remain ahead of competition.
Gradual recovery in discretionary spends would drive GSK-CH business, supported by innovation, in our view. Margins could remain under pressure, given inflationary cycle and high ad spends.
We retain our Add rating, with a DCF-based target price of ₹2,734 (59.8x FY23E EPS). Risks to our call include significant acceleration in volumes/prices, and decrease in ad-spends leading to margin expansion.
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