Shares of Hindustan Unilever sank 3.7% in trade on Friday as the street factored in the FMCG giant’s Q1FY24 earnings; the stock price touched an intraday low of Rs 2,603.5 apiece. HUL reported revenue growth of 7% on-year (3% volume growth) to Rs 14,931 crore. The company’s gross and EBITDA margins improved on an on-year basis, however, EBITDA margin expansion was moderated owing to higher ad spends and other expenses. Adj. PAT clocked in at Rs 2,500 crore, up 9% from the corresponding quarter in the previous financial year.
Stock Call: Hindustan Unilever
Prabhudas Lilladhar: Hold
“We cut our FY24/25 EPS by 5.3%/4.8% and rating to HOLD factoring in 1) tepid volume growth in 1Q in F&R and Personal wash 2) waning impact of pricing as HUL cuts prices to ward off competition from local/regional players and 3) higher tax rates (26% v/s 24.5% earlier). Although 73% of sales (HPC) are growing volumes in mid-single digits, market dynamics & trade and consumer inventory will enable gradual increase in volume growth. Although rural markets appear to have bottomed out, erratic weather conditions can increase inflation in daily use items and impact volume recovery. Although the long term growth story led by lower penetration and superior value proposition remains, near term pressure on growth can’t be ruled out.”
HDFC Securities: Reduce
“In the near term, in a stable commodity scenario, growth will largely be volume led with pricing
remaining flattish to slightly negative. With the resurgence of small players given softening RM inflation, HUL will continue to focus on (1) rebalancing price and volume growth; (2) building back gross margins; (3) stepping up A&P investments; and (4) defending market share. We model a gradual recovery in demand given the 2-3 quarter lag seen between price cuts and demand upticks. We cut our FY24 estimates by 2% to reflect near-term pressure. We value the
stock on 47x P/E on Jun-25E EPS to derive a TP of INR 2,550. Maintain REDUCE.”
Centrum: Add
“We have argued in the past that in a rising inflationary scenario HUVR could grab markets from local/ regional players across the portfolio, but with easing of commodity inflation there is a risk of such competition hitting back. To remain relevant and retain consumer confidence, HUVR may need to provide superior value and invest more in consumer promotions and ad-spends. We expect gradual recovery in discretionary spends and inherent distribution strength to drive BPC/GSK-CH business. That said price cuts to check margins in our view, yet we expect mid-single digit volume growth in FY24E. We need to be watchful about, (1) dent from regional competition, (2) to prioritize volume HUVR may step up A & P spends, and (3) margins to remain in a tight band. We increased our earnings in FY24E/FY25E by 1.1%/2.5% and retain ADD rating, with a revised DCF-based TP of Rs2,800 (implying 54.8x FY25E EPS). Risks to our call include significant acceleration in volume/price, decrease in ad-spends & lower competitive intensity.”