RESULTS REVIEW 2QFY19 13 OCT 2018 Hindustan Unilever NEUTRAL HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters Competing against itself HUL reported another quarter of broad-based growth with revenues growing by 12.5% (exp. 13%) with adjustment of 1% fiscal refunds. Volume growth was healthy at 10% (exp. 9%) driven by rural recovery, favorable base (4% in 2QFY18) and market share gain. Robust margin expansion resulted in EBITDA/APAT growth of 20/23% (exp. 18/18%). Rural acceleration (growing at 1.25x of urban), favorable GST rates and company’s own initiatives (new launches, distribution expansion, digital push) have been supporting HUL’s performance in the last 5 quarters. HUL registered 3x growth in the last 5 quarters i.e. 15% vs. 5% growth in FY14-17. Premiumisation, input cost softening and cost control initiatives resulted in robust EBITDA growth (2x growth in the last 5 years i.e. 22% vs. 10% in FY14-17. Management has successfully executed their strategy and most initiatives have played out well. The company has not only beaten its own average performance but has also grown ahead of its peers (relatively small size). We continue to be optimistic on HUL’s healthy revenue and EBITDA growth going ahead, but at a slower pace (heavy base) vs. last 5 quarters performance. We value HUL based on 45x P/E on Sep-20 EPS to arrive at TP of Rs 1,691. HUL was our top pick, but considering rich valuation and limited upside, we downgraded the stock in 1QFY19 to NEUTRAL. Other Highlights Broad based growth: Home Care/PC/F&R registered 12/10/13% revenue growth. Oral care growth remained muted on the back of sustained competition and shift in consumer preference towards the natural’s products. Premium laundry and personal wash sustained healthy volume led growth. Robust 20% growth in EBITDA: Gross margin was down by 74bps YoY, due to delay in price hike. However, we were surprised by the broad-based stringent cost controls aided by technology and GST implementation. Employee/ASP/other expenses grew by mere 1/8/flat%. It led to EBITDA margin expansion of 162bps YoY (exp. 97bps) to 22%. Home Care/PC/F&R EBIT grew by 29/18/25%. APAT was up by 23% to Rs 15.2bn (exp. Rs 14.5bn). Near-term outlook: We advise investors to hold the stock in the backdrop of improving consumer demand dynamics and volatile equity markets. Financial Summary (Rs mn) 2QFY19 2QFY18 YoY (%) 1QFY19 QoQ (%) FY17 FY18 FY19E FY20E FY21E Net Revenue 92,340 83,090 11.1 94,870 (2.7) 3,31,620 3,55,450 3,99,985 4,52,106 5,11,509 EBITDA 20,190 16,820 20.0 22,510 (10.3) 63,400 74,990 88,473 1,02,062 1,17,599 APAT 15,220 12,360 23.1 15,670 (2.9) 19,770 20,790 25,962 29,714 34,119 EPS (Rs) 7.0 5.7 23.1 7.2 (2.9) 19.7 23.8 29.4 34.5 40.6 P/E (x) 79.7 65.9 53.2 45.4 38.6 EV/EBITDA (x) 52.5 44.3 37.3 32.2 27.7 RoCE (%) 53.6 64.0 71.4 72.6 73.4 Source: Company, HDFC sec Inst Research INDUSTRY FMCG CMP (as on 12 Oct 2018) Rs 1,570 Target Price Rs 1,691 Nifty 10,473 Sensex 34,734 KEY STOCK DATA Bloomberg HUVR IN No. of Shares (mn) 2,165 MCap (Rs bn)/(US$ mn) 3,398/46,115 6m avg traded value (Rs mn) 2,378 STOCK PERFORMANCE (%) 52 Week high / low Rs 1,809/1,216 3M 6M 12M Absolute (%) (9.9) 11.1 26.5 Relative (%) (4.9) 9.2 18.6 SHAREHOLDING PATTERN (%) Promoters 67.19 FIs & Local MFs 7.32 FPIs 12.11 Public & Others 13.38 Source : BSE Naveen Trivedi [email protected]+91-22-6171-7324 Siddhant Chhabria [email protected]+91-22-6171-7336
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RESULTS REVIEW 2QFY19 13 OCT 2018
Hindustan Unilever NEUTRAL
HDFC securities Institutional Research is also available on Bloomberg HSLB <GO>& Thomson Reuters
Competing against itself HUL reported another quarter of broad-based growth with revenues growing by 12.5% (exp. 13%) with adjustment of 1% fiscal refunds. Volume growth was healthy at 10% (exp. 9%) driven by rural recovery, favorable base (4% in 2QFY18) and market share gain. Robust margin expansion resulted in EBITDA/APAT growth of 20/23% (exp. 18/18%). Rural acceleration (growing at 1.25x of urban),
favorable GST rates and company’s own initiatives (new launches, distribution expansion, digital push) have been supporting HUL’s performance in the last 5 quarters. HUL registered 3x growth in the last 5 quarters i.e. 15% vs. 5% growth in FY14-17. Premiumisation, input cost softening and cost control initiatives resulted in robust EBITDA growth (2x growth in the last 5 years i.e. 22% vs. 10% in FY14-17.
Management has successfully executed their strategy and most initiatives have played out well. The company has not only beaten its own average performance but has also grown ahead of its peers (relatively small size). We continue to be optimistic on HUL’s healthy revenue and EBITDA growth going ahead, but at a slower pace (heavy base) vs. last 5 quarters performance.
We value HUL based on 45x P/E on Sep-20 EPS to arrive at TP of Rs 1,691. HUL was our top pick, but considering rich valuation and limited upside, we downgraded the stock in 1QFY19 to NEUTRAL.
Other Highlights Broad based growth: Home Care/PC/F&R registered
12/10/13% revenue growth. Oral care growth remained muted on the back of sustained competition and shift in consumer preference towards the natural’s products. Premium laundry and personal wash sustained healthy volume led growth.
Robust 20% growth in EBITDA: Gross margin was down by 74bps YoY, due to delay in price hike. However, we were surprised by the broad-based stringent cost controls aided by technology and GST implementation. Employee/ASP/other expenses grew by mere 1/8/flat%. It led to EBITDA margin expansion of 162bps YoY (exp. 97bps) to 22%. Home Care/PC/F&R EBIT grew by 29/18/25%. APAT was up by 23% to Rs 15.2bn (exp. Rs 14.5bn).
Near-term outlook: We advise investors to hold the stock in the backdrop of improving consumer demand dynamics and volatile equity markets.
Revenue was up by 12.5% with addition of 1% fiscal refunds accounting adjustment. Fiscal tax benefits were added to other income (earlier net of excise duty) ASP spend was soft at 8% growth despite new launches and relaunches EBITDA growth of 20% was driven by volume growth and cost savings HUL reported a one-time expense of Rs 350mn owing to restructuring
HUL: RESULTS REVIEW 2QFY19
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Quarterly Segmental (Standalone) Year to March (Rs mn) 2QFY19 2QFY18 YoY (%) 1QFY19 QoQ (%) 1HFY19 1HFY18 YoY (%) Segmental Revenues Home Care 30,800 27,390 12.4 31,460 (2.1) 62,260 57,860 16% PC 43,160 39,100 10.4 44,070 (2.1) 87,230 82,780 12% Foods & Refreshment 17,040 15,260 11.7 17,850 (4.5) 34,890 31,800 14% Others 1,340 1,280 4.7 1,490 (10.1) 2,830 2,720 9% Total 92,340 83,030 11.2 94,870 (2.7) 187,210 175,160 14% Segmental EBIT Home Care 4,920 3,830 28.5 6,020 (18.3) 10,940 8,310 31.6 PC 11,150 9,480 17.6 11,620 (4.0) 22,770 20,270 12.3 Foods & Refreshment 2,880 2,310 24.7 3,340 (13.8) 6,220 5,260 18.3 Others 20 (60) (133.3) (20) (200.0) - (110) (100.0) Total 18,970 15,560 21.9 20,960 (9.5) 39,930 33,730 18.4 (a) Interest Cost & Bank Charges 70 60 16.7 70 - 140 120 16.7 (b) Other Un-allocable Expenses 20 (60) (133.3) (20) (200.0) (3,660) (2,860) 28.0 PBT 21,520 18,010 19.5 21,930 (1.9) 43,450 36,470 19.1 Capital Employed Home Care (9,300) (5,040) na (9,300) na (9,300) (5,040) na PC (2,970) 1,240 na (2,230) na (2,970) 1,240 (339.5) Foods & Refreshment 6,110 5,780 5.7 4,240 44.1 6,110 5,780 5.7 Others 770 750 2.7 810 (4.9) 770 750 2.7 Total (5,390) 2,730 na (6,480) na (5,390) 2,730 (297.4) Unallocable Capital Employed 75,430 61,690 22.3 61,230 23.2 75,430 61,690 22.3 Total Capital Employed 70,040 64,420 8.7 54,750 27.9 70,040 64,420 8.7 Source: Company, HDFC sec Inst Research EBIT Margin EBIT Margin 2QFY19 2QFY18 YoY (bps) 1QFY19 QoQ (bps) 1HFY19 1HFY18 YoY (bps) Home Care 16.0 14.0 199 19.1 (316) 17.6 14.4 321 PC 25.8 24.2 159 26.4 (53) 26.1 24.5 162 Foods & Refreshment 16.9 15.1 176 18.7 (181) 17.8 16.5 129 Others 1.5 (4.7) na (1.3) na - (4.0) na Total 20.5 18.7 180 22.1 (155) 21.3 19.3 207 Source: Company, HDFC sec Inst Research
In the last 4-5 quarters home care’s premium portfolio has consistently outperformed HUL’s overall growth HUL has begun to take price hike to pass on crude inflation, particularly in the home care portfolio
HUL: RESULTS REVIEW 2QFY19
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Net Revenue Growth Underlying Volume Growth
Source: Company, HDFC sec Inst Research Note: Like-to-like growth for 2QFY18-1QFY19
Source: Company, HDFC sec Inst Research
EBITDA APAT
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
We are encouraged by HUL’s broad-based growth. However the company was enjoying a favourable base in the last 4 quarters which will now normalise Price hike will materially support revenue growth in the medium term HUL grew by an impressive 12% YoY in a year (FY18) marked by disruptions
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HUL: RESULTS REVIEW 2QFY19
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A&P Personal Care Performance
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Home Care Performance Foods & Refreshment Performance
Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research
Personal wash growth was driven by the premium portfolio (Dove and Pears) HUL launched a Rs 5 pack of Lifebuoy in select geographies to drive volume growth in rural Hair care witnessed broad-based double digit growth GST led price-cuts (>800 SKUs benefited) are aiding in driving growth for premium products Only 1 in 10 washes arise from premium detergent providing significant scope for premiumisation
Oral care growth was challenged after 2 consecutive quarters of recovery Premium mix in detergent rises by ~100bps annually for HUL Purifiers performance was subdued during the quarter Foods & Refreshment growth was driven by ice-creams, beverages and foods (Kissan and Knorr)
HUL: RESULTS REVIEW 2QFY19
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Assumptions
FY17 FY18 FY19E FY20E FY21E Revenue Growth (%)
Home Care 4.9 15.0 13.1 13.5 13.5 PC 1.9 10.0 11.3 11.7 11.9 Foods 2.6 11.0 17.2 17.2 17.2 Refreshment 8.3 12.0 14.0 14.9 15.0 Total 3.3 12.0 12.5 13.0 13.1
EBIT Margin (%) Home Care 11.2 14.6 16.9 16.9 16.9 PC 23.7 25.3 26.6 27.3 28.1 Foods 7.7 8.5 10.0 11.5 12.7 Refreshment 15.7 17.2 17.7 18.2 19.0 Total 17.4 19.5 20.9 21.4 21.9
Gross Margin (%) 50.8 52.9 53.8 54.4 55.3 Employee (% of sales) 5.3 5.2 5.0 4.9 4.8 ASP (% of sales) 10.7 11.7 12.2 12.2 12.2 Distribution (% of sales) 4.6 4.4 4.2 4.2 4.2 Other Expenses (% of sales) 11.2 10.6 10.3 10.5 11.1 EBITDA Margin (%) 19.1 21.1 22.1 22.6 23.0 Tax Rate (%) 30.5 28.5 29.0 28.5 28.0 Source: Company, HDFC sec Inst Research | Note: FY18 revenue growth is like-like Estimates Change
FY19E FY20E FY21E
OLD NEW Chg (%) OLD NEW Chg (%) OLD NEW Chg (%) Net Sales 4,00,828 3,99,985 -0.2% 4,53,043 4,52,106 -0.2% 5,12,551 5,11,509 -0.2% EBITDA 86,610 88,473 2.2% 1,00,861 1,02,062 1.2% 1,16,757 1,17,599 0.7% APAT 62,343 63,583 2.0% 73,901 74,571 0.9% 88,044 87,762 -0.3% EPS 28.9 29.4 2.0% 34.2 34.5 0.9% 40.8 40.6 -0.3% Source: HDFC sec Inst Research
Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period
16-Jul-18 1,751 NEU 1,709 10-Oct-18 1,514 NEU 1,687 13-Oct-18 1,570 NEU 1,691
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HUL: RESULTS REVIEW 2QFY19
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