HUL muted Q4 results a temporary blip? Analysts share outlook, price targets for FMCG stock

Hindustan Unilever (HUL) disappointed Dalal Street with its muted March quarter results. Analysts said operating environment remains challenging for the FMCG major and that recent price cuts in detergent, soaps and BPC portfolio and increased royalty may weigh in on its margins going ahead. There are no signs of rural recovery as FMCG rural market volume continues to decline, analysts said but added that premium portfolio for HUL continued to outperform with market share gains.

Centrum Broking said HUL initiated price cuts in detergent, soaps and BPC portfolio to maintain price‐value equation, but still expects gross margins to improve despite likely increase in media spends.

"We remain cautiously optimistic expecting mid‐single digit volume growth as near term operating environment continue to be challenging. Considering price cuts and increased royalty rate at 3.45 per cent, we trimmed our earnings and retain 'ADD' rating, with a revised target of Rs 2,703," it said.

As far as March quarter results go, Nuvama said revenue, Ebitda and profit for the quarter came in 2–3 per cent lower than its estimates. What it liked was an expansion in BPC EBIT margin, which rose 95 bps sequentially. aided by softening in palm oil prices.

"Fabric wash, household care, skin cleansing (led by Lux) and coffee grew in double digits. HUL launched new specialist skin care brand ‘Novology’ in the masstige beauty segment. HUL’s 75 per cent-plus of business is winning market share. Although margins remain under pressure YoY, Ebitda margin QoQ expanded 11 bps despite A&P spends inching up 80bp QoQ," it said.

What Nuvama did not like was a 3 per cent fall in rural volumes. Consumer downgrading in tea due to high inflation in premium teas vis-à-vis loose tea and mid-single-digit growth in ice cream segment due to unseasonal rains were other major letdowns, it said.

ICICI Securities has a target of Rs 2,750 for the stock. Given the context of no significant signs of rural recovery and key commodities still remaining above pre-covid levels, ICICI's outlook for staples companies remain neutral for FY24.

"But HUL is likely to be better off versus peers as the salience to mast market products is relatively lower versus peers. On the nutrition portfolio – the journey for a significant change in trajectory is not yet visible," it said.

Axis Securities, which has a target of Rs 2,800 on the stock, HUL’s tepid Q4 results were a temporary blip and thar the company’s performance should start seeing improvement as 75 percent of its business continued to gain market share through premiumisation and driving operational efficiency.

"Moreover, the rural slowdown has bottomed out and should start witnessing recovery moving forward on account of increased government spending ahead of the elections, increased urban remittances and the RBI’s continued stance on controlling inflation. Furthermore, the recent fall in key raw material prices – crude and palm oil would help further drive the overall volume growth of the company," it said.

HUL reported a 13 per cent year-on-year (YoY) rise in net profit at Rs 2,601 crore for the March quarter on 11 per cent jump in sales at Rs 14,953 crore.a

Also read: LIC front-running case: Sebi bans three individuals, two entities from stock market

Also read: Raymond shares see profit-booking; slip 7% a day after Rs 2825-cr deal with Godrej Consumer