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Hindustan Unilever (HUL) is likely to report its September-quarter earnings later in the day today. The numbers will also be a reflection of how well the FMCG major has recovered from the recent GST turbulence.
For the quarter ended June 2017, HUL had posted flat volume growth as its trade network had begun destocking in June anticipating the new tax in July.
Profit after tax at Rs 1,283 crore for the June quarter rose 9.3% as compared to Rs 1,174 crore in Q1FY17.
Sentiment during the last quarter, according to the company, was cautious in the run up to GST rollout. It noted that despite high promotional intensity, stock pipelines remained low and varied across categories, channels and geographies.
Here is what brokerages expect from HUL numbers due today:
HUL is expected to report 9% increase in sales on 4% increase in volume. The brokerage estimates flat margins and EBITDA at Rs 1,620 crore. Adjusted profit after tax (PAT) is expected to increase 10.6% at Rs 1,196 crore.
“We believe that HUL’s efficient and prompt GST implementation has helped it recover volumes at a faster pace in Q2,” Prabhidas Lillladher said in a result preview note.
The brokerage expects the PAT to rise 14.9% to Rs 1,243 in Q2FY18 fron Rs 1,081.8 in Q2 FY 17. The company is expected to report 7.8% rise in revenue in Q2 to Rs 8,298 crore from Rs 7,697.6 crore in Q2FY17. The EBITA, on the other hand, is pegged to rise 0.9% to 19.1% from 18.2% in the corresponding quarter last year.
Analysts at MOSL expect the company to report 18% compunded growth (CAGR) in PAT over FY17-19, as against 6.1% in the last three years, 10.6% in the last five years and 10.7% in the last 10 years.
“While valuations are not cheap at 45.2x FY19E EPS (given potentially strong earnings growth), we believe premium valuations are justified, particularly as return ratios and dividend yield remain best-of-breed,” the brokerage said.
We remain constructive on HUL, and expect healthy 12% revenue CAGR over FY17-20, higher than 8% in the last five years. Our assumption of revenue growth is based on (1) Premiumisation across HUL’s portfolio, (2) Expansion in the branded market post GST, (3) Improving consumer sentiment (monsoon can be a tailwind) and (4) HUL’s increased direct reach.
We expect revenue/EBITDA/APAT CAGR of 12%/18%/20% respectively over FY17-20. HUL’s high valuation is natural, considering consistent market share gain with margin expansion and strong RoCE. We expect HUL to be a key beneficiary of GST and premiumisation. We value HUL based on 42x P/E on Sep-19 EPS. Our target price is Rs 1,363. We maintain BUY.
(HDFC Securities note dated Sept 22, 2017)