Hindustan Unilever shares to hit Rs 3,000-mark soon? Nomura India price target suggests so

Hindustan Unilever (HUL), whose shares hit an all-time high of Rs 2,859.10 in September 2021, could top Rs 3,000 level, if Nomura India's June 6 price target is to go by. The foreign brokerage sees the FMCG stock at Rs 3,025, as it values the stock at 55 times March 2025 earnings per share (EPS), broadly in line with its past five year average trading multiple.

To be sure, Nomura India had a target of Rs 3,175 on the stock at the end of December 2022, which it trimmed to Rs 3,125 in January and later to Rs 3,025 in April this year. It maintained that target in a quick note on June 6 while citing gradual uptick in growth and margin improvement.

"The complete benefits of deflationary input costs will be fully recognised over the next two quarters as HUL is likely to carry certain high-cost finished goods inventory," it said.

The brokerage projected 9 per cent growth in sales, 11 per cent growth in Ebitda and 12 per cent YoY growth in adjusted profit for the June quarter. It sees operating profit margin (OPM) at 23.9 per cent for Q1, up 30 basis points YoY.

OPM expansion will be limited as HUL will continue to invest in ad spends and brand building activities to fend off increased competition from unorganized players in a deflationary input costs environment, it said.

Urban markets should continue to grow faster than rural markets in the June quarter, Nomura said. That said even as rural market demand is witnessing a better trajectory, it is still not out of the woods and the pace of recovery is gradual, Nomura said while suggesting full benefit of the harvest money is yet to be seen translating into product, consumer demand.

"Sequential improvement in industry demand is continuing in 1Q24F; albeit, the pace of recovery is gradual. April industry volumes grew c.3-4 per cent YoY(vs flat YoY growth in 4Q23). Our 1Q24F volume growth estimate: 5 per cent YoY," it said.

Nomura said June quarter did not witness any major incremental price hikes. It expects pricing-led growth to taper down pointedly. Hindustan Unilever has taken incremental price cuts in its laundry portfolio in June quarter on deflationary input costs, it said.

"Its soaps portfolio had witnessed major price cuts in the March quarter, with some carry forward price cuts coming in the June quarter as well. Health food drinks (HFD) will witness some price hikes in June quarter owing to elevated milk prices. Our June quarter price hike estimate: 4 per cent YoY (vs 7 per cent YoY in 4Q23)," it said.

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