Hindustan Unilever Ltd. share price target

Nutrition business to drive food segment growth Cost inflation, media spends to restrict margin expansion Palm Oil & Tea prices have been up 40% compared to last year. Though, crude prices have been 30% lower, it is slowly inching up. The company has taken only partial price hikes in last six months. Further, media spends have increased by 175 bps sequentially due to aggressive new launches. We believe these cost increase would restrict operating margin expansion. We...

Retain BUY with revised TP of Rs. 2,636 (earlier Rs. 2,455) as we raise our target PE to 55x FY23E EPS (53x earlier) given strategy to invest for growth and deliver a consistent and profitable volume led growth.

Hindustan Unilever (HUVR) 3QFY21 result was below our estimates due to higher than expected raw material cost pressure. Overall business, on comparable basis, grew 7%YoY (+4%YoY volume growth) driven by continued double-digit growth momentum in health, hygiene and nutrition portfolio. Revenue from discretionary portfolio moderately declined by 1%YoY while revenue from out-of-home portfolio recovered strongly compared to previous two quarters. Revenue from rural India grew at double digit while from urban remained in positive territory. Inflationary raw material led to decline in gross margin while higher other expenses contributed towards decline in...

We have done SKU level analysis of Hindustan Unilever's (HUVR) soap, detergent and tea portfolio which contributes c. 60% to total revenue. We note that; (i) tea and soap category, FMCG companies have taken price hikes driven by inflationary raw material pricing trend (ii) in tea portfolio HUVR has been highly conservative in taking price hikes while in Soaps it has been aggressive compared to competition (iii) in detergent powder category HUVR has taken price cuts in line with deflationary raw material pricing trend while P&G; has taken price hike. We expect; HUVR to gain volume led market share in both detergent and tea portfolio which contributes c. 33% to total revenue. In soaps...

We upgrade our FY21/22E Revenue estimates by 2%/5% and introduce FY23 estimates. Revise rating to BUY from HOLD earlier with change in TP to Rs. 2,455 (earlier Rs. 2,200) as we continue to value the stock at 53x FY23E EPS.