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HUL hits new high as Q4 sales volume beats estimates

SI Reporter/Mumbai 15 May 18 | 09:19 AM

Hindustan Unilever (HUL) hit a new high of Rs 1,543, up 2.5% on the BSE in early morning trade, after the fast moving consumer goods (FMCG) major reported a better than expected sales volume growth of 11% in March quarter (Q4FY18). Analysts expected sales volume growth in the range of 5% to 8%.

HUL reported 14.2% increase in its standalone net profit to Rs 13.51 billion in Q4FY18, driven by a strong double digit volume growth.  The company had posted a net profit of Rs 11.83 billion in January-March period a year ago.

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The company’s net sales during the quarter under review stood at Rs 90.03 billion compared to Rs 87.73 billion in the same quarter previous fiscal. EBIDTA (Earnings before interest, tax, depreciation and amortization) margin improved 240 bps to 22.5% in Q4FY18 from 20.1% in Q4FY17.

In our view, double digit growth in sales volumes during 4QFY18 has been encouraging and points towards an improving rural economy. We believe that the company will witness accelerated growth in sales led by strong recovery in personal care and broad based growth in fabric care, said analysts at Antique Stock Broking in result review.

We continue to believe that Goods and Services Tax (GST) implementation and rural recovery will be key catalysts for HUL's outperformance. We expect HUL to maintain its trend of margin expansion. The management has indicated towards rise in inflation in raw material prices but will plans to offset the same from cost saving initiatives and price hikes. We have increased our EPS estimates for FY19e and FY20e by 4% and 9% in view of expected acceleration in revenue and earnings, the brokerage firm said with maintain BUY rating on the stock with a revised target price of Rs 1,649.

“Management highlighted rising input inflation, particularly crude led, and increase in competitive intensity in some categories. However, it remains confident of driving margin expansion through its accelerated cost-saving measures," analysts at Emkay Global Financial Services said in result update.

Consistent outperformance vs peers, improving volume growth trend and margin upsides justify HUL’s current rich valuation at 44x FY20E EPS. Maintain ACCUMULATE and increase target price to Rs 1,620 (from Rs 1,480), rolling forward to June-20E EPS, the brokerage firm said.

In past one year, HUL has outperformed the market by surging 56% as compared to 18% rise in the S&P BSE Sensex.

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