'Bite-sized Horlicks sachet key can be key driver for Hindustan Unilever growth'

Shares of FMCG major Hindustan Unilever (HUL) tanked almost Rs 60 or 2.5% and was trading around Rs 2,350 despite the company reporting a good set of numbers on all fronts in 4QFY21, led by a recovery in its discretionary portfolio and detergents. For the Jan-March 2021 quarter, the company saw its consolidated net profit surge 44.8% to Rs 2,190 crore in March 2021 from Rs 1,512 crore in the same quarter of the previous year.

Likewise, its revenue from operations grew at 35% from Rs 9,211 crore in March 2020 to Rs 12,433 crore in March 2021. However, the fall is on the back of management commentary that the demand environment is uncertain in the near term due to escalating Covid cases in the country. But most brokerage houses are upbeat are on the stock in the medium term.

Sharekhan | Target price: Rs 2,790 | Upside: 18%

Barring near-term uncertainties due to rising COVID-19 cases, HUL management is confident of achieving volume-led earning growth on the back of a strong product portfolio, agile supply chain, strong distribution model and relatively higher presence in rural India. Synergistic benefits from GSK merger will add-on to the earnings in the coming years. This along with a strong cash-generation ability and dividend payout makes it a better pick in the large-cap FMCG space.

Motilal Oswal | Target price: Rs 2,780 | Upside: 18%

Cut EPS forecasts for FY22E by 4.3% on account of the COVIDled disruption and higher-than-anticipated tax rates, there is no material change to our FY23E EPS. HUL is likely to resume the strong earnings growth path from the pre COVID era (~18% CAGR in the four years ended FY20), led by the same factors – a successful Winning in Many Indias (WIMI) strategy, a technological edge, and cost-saving plans, as well as newer factors such as expected synergies from GSKCH and sustained growth and premiumization in skin Cleansing.

Kotak Institutional Equities | Target price: Rs 2,650 | Upside: 12%

HUL reported organic revenue/volume growth of 21%/16% YoY (2-yr CAGR at ~5%/4%) on expected lines. EBITDA margin (24.4%) delivery was impressive in the context of gross margin pressure. A good bounce-back of the home care segment and HUL’s thrust on Horlicks (Rs 2 sachets launched to drive penetration) are encouraging. Expect further price increases to offset raw material inflation notwithstanding focus on volume growth/market share. We tweak estimates as we roll over and raise discounted cash flow based future value to Rs2,650 (Rs2,625 earlier), implying 53X Jun-23E earnings.

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