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Stock Recommendation: Hindustan Unilever — Sell — TP Rs.1,605
Publish date: 17th July, 2018
Strong quarterly performance
The juggernaut called the Hindustan Unilever (HUL) continues to roll on as it posted double-digit growth across all the three sectors in the first quarter of FY2019. The company’s WIMI (Win in Many Indias) initiative was one major factor for the stellar performance. The other contributing factors are: cost management, right product mix and innovation.
But a lot has happened during that period. The company’s stocks have increased by 18% and its valuation has hit the ceiling. We don’t expect any advantages in buying the stocks at current levels.
Key Highlights
- The home care segment continues to be the standout performer for the company. The segment’s EBIT earnings increased by 34% year over year (yoy) and operating profit saw a 25%-plus growth this quarter.
- The personal care segment’s performance was a tad underwhelming. The segment’s operating profit grew at a modest 8% yoy.
- The food segment rode on the double-digit growth in tea, ice cream and food segment to clock a 13% EBIT growth.
- The country’s largest FMCG company said the sales volume of all its three segments grew in double digits.
- Gross margins have increased by 190 basis points but the management views inflation and rising crude prices to be major hurdles going ahead.
- The company is in line to expand its EBITDA margin and has revived its rural demand, but we believe that sustaining the super-human efforts over the long-term may not be feasible. In addition, the company’s stock valuation is on the sharper end at 49x FY20E earnings.
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Valuation & outlook
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