Prabhudas Lilladher has given Accumulate recommendation for Hindustan Unilever with a target price of Rs. 2535 in its research report issued on Jul 22, 2021

Prabhudas Lilladher’s research report on Hindustan Unilever

We are cutting FY22/23 EPS by 4.2%/3.2% and downgrading the stock to Accumulate. Despite the near term challenges, we remain positive on the structural story given that 1) More than 80% of business is gaining penetration 2) HFD segment is likely to emerge as a key driver of growth with launch of Rs2/5 pack of Horlicks and Boost and benefits of expansion in distribution and integration post 3Q22 4) Rebound in Discretionary Portfolio with easing of restrictions and improvement in mobility 4) Strong growth in Ecom channel which already accounts for 10% of revenue and 5) gains from strategies like WIMI and SHIKHAR driving distribution led gains. Although HUL used to guide for calibrated margin expansion, however inflation in laundry, skin cleansing and Tea inputs and focus on driving volumes is likely to curtail margin expansion to levels lower than earlier expectations.

Outlook

We expect 11.5% Sales and 14% PAT CAGR over FY21-23 and assign a DCF based target price of Rs 2535 (Rs 2562 earlier). We downgrade the stock to Accumulate (Buy earlier) with near term underperformance.

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