Sell stocks of Hindustan Unilever; target of Rs 435

Hindustan Unileve:-

“Hindustan Unilever (HUL) reported net sales growth of 14%YoY to Rs 6250 crores for Q1FY13. Domestic consumer business grew at 19%YoY led by underlying volume growth of 9%YoY. On segmental basis Soaps & Detergents registered 24%YoY growth, Personal products 13%, Beverages 8% and Packaged foods 17%. EBITDA margin for Q1FY13 rose 137bps YoY to 13.4% aided by gross margin improvement of 215bps, lower other expenses (down 93bps) partly offset by higher Advertising & Promotions spends (up 160bpsYoY). Net profit for the quarter grew 28%YoY to Rs 726 crores adjusted for income from sale of properties worth Rs 605 crores. We assign SELL rating on the stock with a price target of Rs 435 (25x FY14E EPS of Rs 17.4).”

“HUL continued with strong quarterly performance with topline growth of 14%YoY (up 10%QoQ) driven by 9%YoY underlying volume growth. Domestic consumer business grew by 19%YoY. Both key segments Soaps & Detergents and Personal products contributed with double digit volume growth. HUL reported double digit growth across segments with its key segments Soaps & Detergents (improved volumes & double digit growth across brands), Personal Products(driven by skin & Hair care) and Packaged foods (Kissan Ketchup and soups registering double digit growth led by volumes) leading the pack registering 24%, 13% and 17%YoY revenue growth. Beverages segment reported growth of 8% YoY growth led by strong growth in coffee. EBIT growth was driven by all the segments. EBIT margins for the soaps & detergent category (up 297bps YoY), Beverages (up 213bps YoY), Packaged foods (up 100bps YoY) and personal products (up 41bps YoY) improved on back of increase in prices, global buying efficiencies and lag effect between consuming cost and replacement cost. We believe with judicious price hikes the current EBIT margins are sustainable.”

“We maintain our positive outlook on the stock and believe 21% earnings growth over FY12-14E is achievable considering healthy volume growth & improved margins (product mix & price increases). However the stock is currently trading at a P/E of 31x and 27x its FY13E and FY14E earnings. Consequently, we recommend SELL on stock with a target price of Rs. 435, (25x FY14E EPS of Rs 17.4), giving a downside potential of 7%,” says KRChoksey research report.