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Neutral Hindustan Unilever, target Rs 1,691: HDFC Securities

HDFC Securities has a neutral call on Hindustan Unilever (HU..

HDFC Securities has a neutral call on Hindustan Unilever (HUL) with a target price of Rs 1,691.

The current market price of HUL is Rs 1,523.20.

Time period given by the brokerage is one year when HUL price can reach the defined target.

View of HDFC Securities on HUL:

HUL reported another quarter of broad-based growth with revenues growing by 12.5 per cent with adjustment of 1 per cent fiscal refunds. Volume growth was healthy at 10 per cent driven by rural recovery, favorable base (4 per cent in 2QFY18) and market share gain. Robust margin expansion resulted in EBITDA/APAT growth of 20/23 per cent.

Rural acceleration (growing at 1.25x of urban), favorable GST rates and companys own initiatives (new launches, distribution expansion, digital push) have been supporting HULs performance in the last 5 quarters. HUL registered 3x growth in the last 5 quarters i.e. 15 per cent vs. 5 per cent growth in FY14-17. Premiumisation, input cost softening and cost control initiatives resulted in robust EBITDA growth (2x growth in the last 5 years i.e. 22 per cent vs. 10 per cent in FY14-17.

Management has successfully executed their strategy and most initiatives have played out well. The company has not only beaten its own average performance but has also grown ahead of its peers (relatively small size). We continue to be optimistic on HULs healthy revenue and EBITDA growth going ahead, but at a slower pace (heavy base) vs. last 5 quarters performance.

We value HUL based on 45x P/E on Sep-20 EPS to arrive at target price of Rs 1,691. HUL was our top pick, but considering rich valuation and limited upside, we downgraded the stock in 1QFY19 to 'neutral'.

Near-term outlook of HDFC Securities on HUL: We advise investors to hold the stock in the backdrop of improving consumer demand dynamics and volatile equity markets.

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