Rs 22 Dividend From This Top FMCG Player, “Accumulate” The Stock, Says PL

Broking firm Prabhudas Lilladher has an accumulate call on the stock of Hindustan Unilever and has set a target price of Rs 2785 on the stock of the nation's largest FMCG player.

"We cut our FY24/25 EPS by 6.9%/5.0% factoring in focus on volume led growth, delayed recovery in gross margins and increase in A&P spends (390bps cut from FY20 levels). Competitive intensity has increased in the space given moderation in RM basket. HUL continues to guide for QoQ GM/EBITDAM improvement with stabilizing inflation, narrowing cost price gap and calibrated price cuts to restore price-value equation. Rural markets continue to lag urban, however pace of sequential volume improvement in bodes well for upcoming quarters. 4Q23 saw mid-single volume growth led by double digit volume growth in Home Care, Skin Cleansing and Coffee," the brokerage has said.

Prabhudas Lilladher expects GM/EBITDAM improvement of 510/160bps over FY23-25 given stabilizing raw material basket & premiumisation trends.

"We estimate 13.0% Sales and 17.9% PAT CAGR over FY22-25 and assign a DCF based target price of Rs2785 (Rs2800 earlier). Pick up in volume growth remains a key near term trigger. The stock trades at 44.3xFY25 EPS. Retain Accumulate," the brokerage has said in its latest report.

Revenues at HUL grew by 10.6% YoY to Rs148.9bn. Gross margins contracted by 84bps YoY but improved 122 bps QoQ to 48.7% (PLe:50.2%). EBITDA grew by 7% YoY to Rs34.7bn (PLe: Rs 36.6 bn). A&P Expenses was flattish at Rs12.9bn. Adj PAT grew by 8.2% YoY to Rs24.7bn (PLe: Rs26.1bn). Home Care revenues grew by 18.7% YoY; EBIT grew by 12.5% YoY; while margins contracted by 104bps YoY to 18.7%.

Disclaimer

Please note, we have highlighted the stock recommended by Anand Rathi and this is not a recommendation of the author, nor Greynium Information technologies Pvt Ltd. This article is information and we have not done any fundamental analysis. Neither the broking firm, nor the author nor Greynium Information Technologies Pvt Ltd would be responsible for losses caused from a decision in this article.