Macquarie
We downgrade Hindustan Unilever (HUL) to ?neutral? from ?outperform? and lower our FY14e and FY15e EPS by 1% and 5%, respectively, on higher tax rates.
We retain our target price of R650 based on the PER methodology. We maintain our view that HUL is one of best Indian consumer stocks to own from a 2-3 year perspective, but we see limited upside in the near term after the 45% up move since May 2013. We expected the stock to move up after the conclusion of Unilever?s open offer, but the rally has been too fast.
HUL reported muted sales and PAT growth of 7% and 4% y-o-y, respectively, in Q1FY14. Adjusted PAT was ~2% ahead of expectations. Overall, volume growth of 4% y-o-y (adjusted growth of 5%) was inline with our expectations, but a muted growth of 2% in personal products disappointed the street. Ebit margin expanded 70bp y-o-y despite higher A&P spend and royalty payout.
Sales grew modestly at 7.7% y-o-y, primarily due price deflation as the company passed on the benefits of lower input prices. Mass skin lightening brand, Fair & Lovely, sales declined in Q1FY14 due to high base and slowdown in overall discretionary spending.
On the whole, we remain positive on HUL business and think growth moderation is temporary and is primarily due to economic slowdown and high consumer inflation. We are confident on HUL strategy and long-term growth outlook.
