What should investors do with HUL, Asian Paints, PVR post Q3 results; buy, sell or hold?
6 min read 19 Jan 2023, 09:18 PM ISTThe majority of them have witnessed stable growth in the top-line front, while bottom-line parameters have improved.
PremiumMajor companies in their respective fields such as Hindustan Unilever, Asian Paints, PVR, Havells India, and Polycab India have announced their December 2022 quarterly earnings. The Q3 earnings will play a key role in the movement of these companies' equity shares on Friday. The majority of them have witnessed stable growth in the top-line front, while bottom-line parameters have improved. Post Q3, what should be investors' stance in these companies?
1. Hindustan Unilever (HUL):
This FMCG giant posted an 11.6% YoY growth in standalone PAT to ₹2,505 crore in Q3FY23 aided by increasing demand for its beauty and personal care products, which offset a rise in raw-material costs. While revenue stood at ₹14,986 crore in Q3FY23, rising by 16% from ₹12,900 crore driven by Beauty and Personal Care Segment, Home Care, and price hikes in the laundry.
HUL's Q3 revenue beats estimates due to healthy volume growth, however, profitability and EBITDA were a miss. Gross margins improved.
Amnish Aggarwal – Head of Research, Prabhudas Lilladher said, "The quarter saw sequential margin improvement with inflation moderating QoQ. Inflation still remains elevated YoY which led to a sharp gross margin slippage of 463bps YoY to 47.5%. EBITDA margins at 23.2% were managed due to a cut in employee expenses (58bps), ad spends (120bps), and lower other expenses (103bps). Royalty agreement with Parent Unilever is set to increase from 2.65% to 3.45% (+80bps) over a 3-year period would be front-ended which adds to margin pressure in the near term. Royalty increase will impact EPS by 2-2.8% for FY24 and FY25."
Aggarwal added, "We have an Accumulate rating on the stock with a TP of Rs2798."
2. Asian Paints:
During Q3FY23, Asian Paints reported a consolidated net profit of ₹1,097 crore higher by 6%. In the quarter, muted demand offset the benefits from a correction in raw material costs. Also, revenue from operations rose by a percent to ₹8,636 crore as compared to ₹8,527 crore year-on-year (YoY).
The leading paints manufacturer said, the domestic Decorative Business registered a flat volume and value sales delivery for the quarter, on a very high price increase base in the previous year.
As per Aggarwal, Asian Paints has reported numbers below our/street estimates on all fronts. Volumes were flat YoY which was impacted by high base & extended monsoons in Oct which affected the festive demand.
He added, "Margin recovery is a positive which we believe can continue into 4Q as well. However, APNT might settle for margins lower than historical given the expected entry of Grasim in Paints. We remain positive on APNT; however, a re-rating looks unlikely given premium valuations and likely disruption due to the entry of a large player."
On valuation, Aggarwal said, "We have an Accumulate rating on the stock with a TP of Rs3326," adding, "Stock is trading at 51.3x/43.8x FY24/FY25 EPS."
Also, Kaustubh Pawaskar- Analyst, Sharekhan by BNP Paribas said, "Asian Paint’s performance was a miss on estimates with revenues and PAT growing by 1.3% and ~7% respectively with sales volume in decorative paints business remaining almost flat. As expected gross margins and the EBIDTA margins improved on sequential basis. Domestic decorative paint business witnessed recovery in Nov & Dec after muted performance in October affected by delayed monsoon and price hikes in the portfolio."
Sharekhan analyst added, "If commodity prices decline from the current level it will the company to post better margins ahead and also help in taking relevant pricing actions to improve volume growth ahead. The stock has underperformed in the recent past and any further correction can be considered as a good opportunity to accumulate quality consumer goods company from long term perspective."
3. PVR:
This leading multiplex chain operator turned profitable in Q3FY23 to the tune of ₹16.15 crore versus losses of ₹10.18 crore in Q3FY22 and ₹71.23 crore in Q2FY23. In Q3FY23, the company's consolidated revenue from operations rose by 53.17% YoY and 36.98 QoQ to ₹940.69 crore. PVR witnessed a sharp bounce back from the previous quarter on the back of strong content performance.
Jinesh Joshi – Research Analyst, Prabhudas Lilladher highlighted that PVR's footfall was in-line while Ind-AS EBITDA & PAT were above estimates. He said, "Top-line increased 53% YoY to Rs9,407 million (PLe Rs8,772 million) on a lower base buoyed by good content with movies like PS-1, Kantara, Avatar and Drishyam-2 clocking upwards of Rs1bn. Footfalls increased 52% YoY 22 million, (PLe of 21.5 million) but were 15% lower than 3QFY20 (comparable pre-COVID quarter)." While ATP increased 2% YoY to Rs244 (PLe of Rs243), and SPH increased 3% YoY to Rs133 (PLe of Rs131).
Adding Joshi said, "Ind-AS adjusted EBITDA increased 238% YoY to Rs1,283 million (PLe Rs1,098 million) and posted sharp sequential recovery (Ind-AS adjusted EBITDA loss of Rs23 million) due to good content. Ind-AS adjusted PAT stood at Rs252 million (PLe Rs140 million) in comparison with Ind-AS adjusted loss of Rs219mn in 3QFY22."
Currently, the Prabhudas Lilladher analyst has recommended a BUY rating on the stock with a TP of Rs2,005.
4. Havells India:
Havells India posted a net profit of ₹283.54 crore down by 7.2% from ₹305.92 crore in the year-ago period. However, PAT climbed 51.7% sequentially. Revenue from operations rose by 12.8% to ₹4,119.71 crore in Q3FY23 from ₹3,652.25 crore a year ago.
The home appliances maker announced that the board recommended a declared interim dividend of Rs. 3 per equity share of ₹1.
According to Sahay, Havells' revenue and margins were a surprise in Q3. He said, "Revenues grew by 12.6% YoY to Rs41.3 billion (PLe: Rs38.1 billion). Core segment revenues grew by 10.1% YoY and Lloyd revenues grew by 30% YoY. Gross margins expanded by 70bps YoY to 33%. EBITDA declined by 3.7% YoY to Rs4.2 billion (PLe: Rs3.3 billion). Margins contracted by 170bps YoY to 10.3%. (PLe:8.7%). PBT declined by 7.1% YoY to Rs3.8bn (PLe: Rs3bn). Adjusted PAT declined by 7.3% YoY to Rs2.8 billion (PLe: Rs2.2 billion)."
In terms of segment-wise revenue performance, year-on-year, the company recorded 3.7% growth in the switchgear business, while the growth was robust at 17% and 30% in the cables and Lloyd business. The company's growth was at 2.5% in lighting, 4.5% in ECD, and 25.9% in others.
Sahay has recommended buying Havells stock. He added, "The stock currently trades at 68x/48x FY23E/FY24E earnings."
5. PolyCab India:
In Q3FY23, Polycab posted a net profit of ₹360.8 crore on a consolidated basis, up by 45% from ₹248.4 crore in the same quarter last year. Revenue soared by 10.17% to ₹3,715.18 crore versus ₹3,371.99 crore in Q3 of FY22.
According to Praveen Sahay – Research Analyst Prabhudas Lilladher, the company's earnings beat estimates.
He said, "Revenues grew by 10.2% YoY to Rs37.2 billion (PLe: Rs34.4 billion). Gross margins expanded by 310bps YoY to 25.7%. EBITDA grew by 39.3% YoY to Rs5.03 billion (PLe: Rs4.3bn) Margins expanded by 280bps YoY to 13.6% (PLe:12.4%). PBT grew by 48.5% YoY to Rs4.8 billion (PLe: Rs3.87 billion). PAT from continuing ops grew by 45.3% YoY to Rs3.61 billion (PLe: Rs2.9 billion)."
The analyst has recommended 'Hold' on Polycab. He said, "The stock currently trades at 35.9x/30.9x FY23/FY24 earnings."
Other companies whose stock will be in focus post-Q3 are --- AU Small Finance Bank, Hindustan Zinc, L&T Tech Services, Can Fin Homes and Hatsun Agro Product, etc.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
