Inflation worries and fear of slowdown in consumer spending could not restrict Hindustan Unilever Ltd (HUL) to report an impressive topline growth of 19.1% y-o-y, primarily driven by 10.2% y-o-y volume growth.
However, the company failed to replicate its performance of topline growth into the bottom line due to cost pressure. As a result, adjusted net profit, excluding other operational income, increased only 11.5% y-o-y.
With a wide product mix, ability to undertake price hikes, and having one of the biggest distribution networks in the sector, HUL is fully equipped to exploit the growing consumption demand in India.
Net sales are expected to grow at a CAGR of 14.7% to Rs182.9 billion over CY07-CY09E. We believe that the company would continue to invest aggressively in advertisement and promotional activities in order to combat increasing competition.
EBITDA margins have been revised for FY08E and FY09E to around 12%. At the current market price of Rs208.5, the stock is trading at a forward P/E of 35.8x and 31x for CY08E and CY09E, respectively.
As per our DCF valuation, we have arrived at value of Rs247, which provides an upside of around 18.7% from its current level. We maintain BUY rating.