Hindustan Unilever Ltd has further stepped up focus on cost savings.

Chirag Batavia • 18 May 2020

Hindustan Unilever Ltd

HUVR’s 4QFY20 revenues declined 9% yoy to Rs90.1 bn led by 7% decline in underlying volume growth (UVG). As per management, it gained market share by about 50 bps (portfolio level) & normative revenue growth (excluding Covid impact) was 3% yoy, weak but broadly similar to 3Q.  Homecare – revenues down 4% yoy, Personal care – revenues were down 13% yoy & Food and refreshment – revenues declined 7% yoy. Overall, demand was resilient for health, hygiene and food products whereas personal care (excluding personal wash), ice-cream and water purifier sales were significantly impacted.  HUVR has further stepped up focus on cost savings. The company would also defer expansion plans (capex) and restructuring expenses. Management indicated that it has ramped up production to 75-80% of normative levels despite lockdown-led challenges which KIE believes as very impressive execution.

KIE has factored in Covid impact and cut FY2021-22E earnings by 11-15%, modelled 12% decline in sales in 1QFY21, flat sales in 2Q and gradual recovery starting 3QFY21 and estimates now include numbers of GSK-CH.  KIE expects HUVR to race ahead of competition, further widening execution gap, and accelerated margin expansion led by permanent retention of a few ‘temporary’ cost savings and dominance of this nimble-footed giant to increase further. KIE has rolled over & arrived at a revised DCF-based fair value of Rs2,300. The current market price of HUVR is Rs 2030 with Rs 4770.72 bn and has an upside potential of 13.18%.

Note: The above is brief note on the company, based on the inputs of KIE research report dated 1st May 2020, which is available on their website at: https://www.kotaksecurities.com/ksweb/ResearchCall/Fundamental.                   
Disclaimer: http://bit.ly/2n5AxIE

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