Prabhudas Lilladher has given Accumulate recommendation for Hindustan Unilever with a target price of Rs. 2930 in its research report issued on Dec 22, 2021

Prabhudas Lilladher’s research report on Hindustan Unilever

HUL’s 20% correction from the peak shows twin impacts of 1) slowdown in rural demand due to lower farmgate income and lower remittances from workers and 2) Impact of Inflation, mix changes and base impact in key categories in urban India, partly neutralized by uptick in discretionary segments. We believe that rural slowdown and inflation challenges are transitory and structural story is intact as 1) More than 75% of business is gaining share which is at a decade high 2) HFD segment is likely to emerge as a key driver of growth led by distribution led gains and small packs 4) sustained innovation across categories and launch of D2C platforms for Lakme, Simple, Dermalogica and Love Beauty & Planet and 5) distribution gains from strategies like WIMI and SHIKHAR. Input cost scenario remains volatile with uncertainty around Omicron covid variant even as we expect HUL’s margins to bottom out in 3Q. We expect 10.9% Sales and 15% PAT CAGR over FY21-24 and assign a DCF based target price of Rs 2930 (unchanged).

Outlook

HUL trades at 43.2xFY24 EPS which not only shows impact of near term growth/margin pressures but also sectoral shift in fund allocations. We believe that risk reward is favorable for steady returns from current levels given ~2% dividend yield, although returns might be back ended. Maintain Accumulate.

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