Why Hindustan Unilever's Q2 earnings failed to excite the market today  

Shares of Hindustan Unilever Ltd (HUL) were trading lower today amid mild gains in the broader market. HUL reported a 19.61 per cent year-on-year (YoY) rise in standalone net profit at Rs 2,616 crore in Q2 compared with Rs 2,187 crore in the corresponding quarter last year. The stock fell 1.68 per cent to Rs 2,530 against the previous close of Rs 2,574 on BSE. Brokerages were of the view that margins of the firm were still under pressure and would take time for a full recovery. On Nifty, the stock hit an intraday low of Rs 2,530, falling 1.6 per cent against the previous close of Rs 2573.10. The FMCG stock has been falling for the last two days. 

The large-cap stock is trading higher than the 100 day and 200 day moving averages but lower than 5 day, 20 day and 50 day moving averages. 

ALSO READ: HUL remains resilient in spite of inflation biting hard in Q2, FY23
 

In a year, the stock has gained 3.7 per cent and risen 8 per cent in 2022.  However, it is down 5 per cent in a month. Total 0.20 lakh shares of the firm changed hands amounting to a turnover of Rs 5.01 crore on BSE. Market cap of the firm rose to Rs 5.97 lakh crore on BSE. In the last quarter, sales rose 16 per cent YoY to Rs 14,514 crore from Rs 12,516 crore. The board of the company announced an interim dividend of Rs 17 per share. EBITDA margin for the quarter came in at 23.3 per cent, down 180 basis points over 25 per cent in the year-ago quarter. Hindustan Unilever said its volume rose 4 per cent for the quarter.

ALSO READ: HUL remains resilient in spite of inflation biting hard in Q2, FY23

 HDFC Securities has given a reduce call on the HUL stock as margins are still under pressure. 

"We do not expect a quick volume and margin recovery in H2FY23. With ongoing demand disruptions in mass segments and structural pressures from new age brands in the premium space (as highlighted in our D2C thematic), we see limited surprise opportunities for HUL. We value the stock on 45x P/E on Sep-24E EPS to derive a target price of Rs 2,200. Maintain REDUCE," the brokerage said. 

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Amnish Aggarwal - Head of Research at Prabhudas Lilladher has assigned an accumulate rating on the stock with a target price of Rs 2827. 

"The quarter saw high priced inventory come into the system which led to sharp gross margin slippage of 580 bps YoY to 45.8%. EBITDA margins at 22.9% were managed due to cut in ad spends (250bps) and lower other expenses (180bps). We expect inflationary pressure to have peaked out and expect sequential margin recovery. We will revisit our numbers post earnings call. We have an accumulate rating on the stock with a target price of Rs 2,827. Stock trades at 44.9 times September 24 EPS, " said Aggarwal.

ICICI Direct has assigned a target price of Rs 2,800 (upside of 5%) against the market price of Rs 2,655. The brokerage expects gross margins to recover sequentially from Q3FY23 onwards given palm oil has sharply dipped from the peak. "We maintain our HOLD rating on the stock," the brokerage said.

Motilal Oswal sees a 16 per cent upside to the stock with a target price of Rs 3,080. 

"While the pace of earnings recovery to double digit and then to mid-teens will be gradual, improving narrative will keep multiples high for the bellwether FMCG company. Rolling forward to Sep'24E EPS and maintaining our target multiple of 60x result in our target price of Rs 3,080 - 16% upside to current market price. We reiterate our Buy rating on the stock," said the financial services firm.