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Hindustan Unilever – Too Much expectations by Investors

November 3, 2009

Hindustan Unilever Ltd – HUL reported recurring PAT at R5bn (+9.7%Y/Y) Despite strong margin expansion (+166bps Y/Y), overall EBITDA rose c17%, as revenue growth was a disappointing 5% – with overall FMCG volume growth of ~1% – despite the lower base.

Market share in both hair and skin remains fairly stable; oral market share [personal wash, skin care and toothpaste] continues to deteriorate. This segment remains the bulwark of profitability. We expect ad spends (as % of sales) to continue to accelerate, as mgmt refocuses on these categories.

When Fund Managers have no choice, they chase ITC & HUL setting in expectations of higher performance. But in the past 8 years HUL has been a laggard with respect to performance that it delivered in the 90s. On the back of Retailers looking towards pushing their own private labels, FMCG companies will be under some pressure.

Citi expects HUL to report EPS of 10.9 and 12.9 for fy10 and fy11.

Goldman expects HUL to report EPS of 10.2 and 11.6 for fy10 and fy11.

CLSA expects HUL to report EPS of 10.5 and 12.3 for fy10 and fy11.

Long term existing investors can HOLD from the Dividend point of you. We find ITC better than HUL.

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