Prabhudas Lilladher has given Buy recommendation for Hindustan Unilever with a target price of Rs. 2356 in its research report issued on Mar 21, 2022

Prabhudas Lilladher’s research report on Hindustan Unilever

We are cutting HUL’s EPS estimates by 2.3/8.2/6.1% for FY22/23/24 and DCF based target price to Rs2356 (Rs2900 earlier). This follows impact of 1) deepening slowdown in demand in rural and urban India 2) likely hit on margins in 1H23 as the impact of Ukraine Russia crises plays out on commodity prices 3) increase in overall inflation led by higher food and fuel prices which could impact medium term demand scenario and 4) increase in risk free rate for DCF from 6% to 6.8% in rising interest rate scenario. We believe that this phase is transitionary and structural story is intact as 1) HUL continues to gain share in key product categories and organized players gain more during times of high inflation 2) HFD segment is likely to emerge as a key driver of growth led by distribution led gains and small packs and 3) sustained innovation across categories and distribution gains from strategies like WIMI and SHIKHAR will play out in long term. However, we expect 1H23 to be challenging due to twin impacts of poor demand and high input cost inflation. We expect 10.5% Sales and 13.9% PAT CAGR over FY22-24.

Outlook

HUL trades at 42.9xFY24 EPS (49.3xFY24 at target price) which not only shows impact of near term growth/margin pressures but also sectoral shift in fund allocations. While 2% dividend yield and strong balance sheet protect downside, expect back ended and moderate returns in current environment. Maintain BUY.

More Info

At 12:41 hrs Hindustan Unilever was quoting at Rs 1,986.30, down Rs 65.15, or 3.18 percent.

It has touched an intraday high of Rs 2,055.05 and an intraday low of Rs 1,969.25.

It was trading with volumes of 163,400 shares, compared to its thirty day average of 97,810 shares, an increase of 67.06 percent.

In the previous trading session, the share closed down 2.41 percent or Rs 50.65 at Rs 2,051.45.

The share touched its 52-week high Rs 2,859.10 and 52-week low Rs 1,901.80 on 21 September, 2021 and 08 March, 2022, respectively.

Currently, it is trading 30.53 percent below its 52-week high and 4.44 percent above its 52-week low.

Market capitalisation stands at Rs 466,699.31 crore.

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