Hindustan Unilever (HUVR) 1QFY22 result was in line with our estimates. Resiliency in demand for health, hygiene and nutrition portfolio helped HUL to protect decline in revenue growth (compared to 4QFY21) due to impact of 2nd wave induced lockdowns. Revenue from discretionary and out of home consumption portfolio impacted significantly. Demand from rural outperformed urban during the quarter.
Commenting on the result review, IDBI Capital said, "Positively HUL has taken 3% price hike in respective product portfolio to mitigate the impact of inflation. Further, premium portfolio is growing at 2x compared to other products; this should be more margin accretive.
Management expects integration with GSK to be 100% complete by Dec’21; this should aid in acceleration of revenue growth in food and refreshment category. However, cost inflation in palm oil, tea and crude oil remains chief concern and is unlikely to abate soon.
Consequently, we have marginally trimmed our EPS estimates by 5% in FY22E and 2% in FY23E. Our revised TP stands at Rs 2,567 (vs 2,607 earlier) with HOLD rating."
Key Highlights and Investment Rationale
Resiliency in demand for Health, hygiene and nutrition drives topline
On comparable basis revenue grew 12%YoY driven by 9%YoY volume growth and c. 3% price hike in laundry, tea and skin care portfolio. Demand for health, hygiene and nutrition portfolio (c. 85% revenue share) continued to remain healthy and grew at 8%YoY (16% QoQ) while discretionary portfolio (c. 12% revenue share) and OOH (3% revenue share) reported decline of 24% QoQ (+39%YoY) and -40% QoQ (+91%YoY). Revenue from home care and food and refreshment grew 12%YoY respectively while from beauty and personal care grew 13%YoY. Revenue from online channels grew 2x YoY and now contributes > c. 10% to the business.
Margins impacted due to inflationary raw material
Gross margin declined 33bp YoY to 51.5% due to inflationary pressure of key raw material prices viz; palm oil, tea and crude oil. EBITDA margin contracted 114bp to 23.9% due to lower gross margin and higher ad spends (+105bpYoY as % of revenue). Adjusted PAT grew 4.4%YoY to Rs 20 billion.
Trim estimates to factor inflation; HOLD
We have factored in impact of rise in inflationary pressure into our estimate. We have trimmed our EPS estimate for FY22-23E by 5% and 2% respectively. Accordingly, our revised TP stands at Rs 2,567 (55x FY23E EPS) with HOLD rating.
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