Hindustan Unilever (NS:HLL): HUL results were a mixed bag, with revenue growth at 12.7% YoY (HSIE 11.4%) and EBITDA growth at 7.7% (HSIE 8.5%). The consumer business revenue grew by 12% YoY (2% two-year CAGR) with UVG of 9% YoY (flat two-year CAGR). The health, hygiene, and nutrition portfolio sustained healthy growth (8% YoY), with its mix increasing to 85%, from 80%. Market share gains continued, well supported by strong rural and sustained momentum in e-commerce (the most profitable channel for HUL). The nutrition portfolio is seeing GTM integration (50% completed); it clocked mid-single-digit volume growth (gaining penetration sequentially). High commodity (crude, palm oil, and tea) inflation and gradual price hikes compressed the gross margin by 139bps YoY. The company has taken a 3% price hike to offset margin pressure. We expect HUL to deliver sustained recovery in the discretionary portfolio and accelerate growth in the nutrition portfolio. We maintain our EPS estimates for FY22/FY23 and value HUL at 55x P/E on Jun-23E EPS to derive a TP of INR 2,475. Maintain REDUCE.
UltraTech Cement (NS:ULTC): We maintain BUY on UltraTech (UTCEM) with a higher target price of INR 8,155/share (16x Jun’23E consolidated EBITDA). UTCEM delivered its best-ever consolidated EBITDA margin – INR 1,536/MT (+16/8% QoQ/YoY) –in Q1FY22. Amidst lower sales QoQ (lockdown impact), robust pricing and healthy cost controls moderated the consolidated net sales/EBITDA/APAT decline to 18/10/6% QoQ, resulting in INR 118.3/33.1/17.0bn (+54/59/79% YoY on a low base) respectively. We continue to like UTCEM for its strong volume focus along with superior margin delivery and working capital (WC) controls.
Bajaj Auto (NS:BAJA): While Bajaj Auto’s Q1FY22 margin (down 260bps QoQ) was below our estimate due to reduced operating leverage, we expect margins to improve from here on as domestic volumes increase. Further, Bajaj will benefit from its presence in the overseas markets, which account for ~50% of volumes. The company is working on future technologies and forming a 100% subsidiary to address electric mobility. Further, it has extensive tie-ups with international majors like KTM & Triumph and in-house R&D capabilities. We maintain BUY with a target price of INR 4,575 (at 20x Jun-23E EPS) as we are confident in its product development capabilities across technologies (ICE (NYSE:ICE), CNG, and EVs) and diverse presence in the 2Ws and 3Ws space. However, we are reducing our estimates for FY22-24E by ~7% to factor in the Q1FY22 results.
Havells India (NS:HVEL): Havells delivered a strong Q1FY22 performance despite the industry facing several challenges due to COVID-19. Revenue grew by 76% YoY (HSIE 68%), driven by strong performance across all segments, notably switch gears and ECD. While our channel checks suggested a ~15% revenue decline vs. Q1FY20, Havells, through its superior execution capabilities, managed to control the revenue decline to 4% (vs. Q1FY20), as against the 46% YoY dip registered in Q1FY21. With the second wave hitting India at the peak of the summer season, Lloyd lost out on crucial sales; however, it posted slightly higher revenue than our expectation (24% down vs. Q1FY20). Despite steep raw material inflation, the gross margin was resilient. The company saw 99bps YoY expansion in gross margin to 35.7% but it was down 170bps QoQ. EBITDA margin expanded by 474bps YoY to 13.6% (HSEI 13.3%) but was down 160bps QoQ. EBITDA grew by 170% YoY (HSIE 152%), clocking a 13% two-year CAGR. We expect the growth momentum to sustain, owing to healthy underlying demand (driven by housing activities), share gains, and revival in B-B. We continue to value Havells at 50x P/E on Jun-23E EPS to derive a target price of INR 1,200. We expect the rich valuation to sustain; maintain ADD.
ICICI Lombard General Insurance Company Ltd (NS:ICIL): ICICI Lombard disappointed expectations as claims of health insurance spiked abnormally (46k in Q1FY22 vs. 49k in FY21), resulting in an all-time high loss ratio of 91%. However, we reckon this as a one-off event – given the exigencies of the COVID pandemic. For the rest of FY22, we expect loss ratios in the company’s health segment to improve, given the rapid pace of vaccination. We have reduced our full-year estimates to factor in higher loss ratios from the second wave, although a potential third wave poses a downside risk to our forecasts. We expect a motor TP price hike in FY22E, which could be a positive catalyst for growth. Given the rich valuations and uncertainties ahead, we rate ICICIGI a REDUCE with a target price of INR 1,250 (implying a Mar-23E PE of 27.3x and a P/ABV of 5.1x).
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