ICICIdirect.com is bullish on Hindustan Unilever (HUL) and has recommended buy rating on the stock with a target of Rs 755 in its July 29, 2014 research report.
"Hindustan Unilever (HUL) posted strong sales growth of 13.2% at Rs 7570.8 crore with better-than-expected volume growth of 6%. All segments reported double digit growth with soaps & detergent (S&D), personal products (PP), beverages & foods reporting 12.9%, 14.6%, 10.4% and 18.6% growth YoY, respectively. Healthy growth in S&D was led by strong growth in Dove, Surf and re-launched Lux. Similarly, foods segment growth was led by robust growth in ice-creams led largely by its premium launch Magnum. EBITDA margins came in at 17.1%, (+110 bps YoY) led by 80 bps lower A&P expenditure and 20 bps lower other expenditure."
"Being the country's largest FMCG player, HUL's volume growth has decelerated in line with the economic downturn. Volume growth has declined from ~13% (FY11) and ~9% (FY12) to ~4% in FY14. The slowdown is largely on the back of a slowdown in urban discretionary demand with rural growth remaining healthy. Going ahead, we believe volume growth would remain muted until FY15E led by the slower revival in GDP growth and persistently high food inflation. However, we believe that as the economy revives and growth gains traction HUL's strong portfolio of brands across segments would aide the company's volume growth back to 6-7% annually. S&D, HUL's largest revenue contributing segment (~49% of sales in FY14) witnessed modest CAGR of 12.6% in FY09-13 led by an equal mix of volumes and prices. The pricing power of HUL is backed by the strong leadership position of HUL in both segments (~40% of value share in detergents and ~45% value share in soaps) and its presence across the value pyramid in each of them. Going ahead, we believe that led by the high penetration (~99%), volume growth in S&D would remain muted and price growth would be the key revenue growth driver estimated at 12.1% CAGR (FY14-16E) for the segment. We believe that price led growth would also be led by premiumisation in the segment with a revival in urban demand in the economy."
"We expect the near term slowdown to keep HUL's growth moderate until H1FY15. However, with a revival in urban demand and strong brands in growing aspirational segments, we believe HUL is strongly placed to capture the booming consumer demand. We value the stock at 35x FY16E EPS of Rs 21.6 arriving at a target price of Rs 755,"ICICIdirect.com research report.
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