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Hindustan Unilever’s Revenue Growth Signals Demand on the Mend

Hindustan Unilever’s Revenue Growth Signals Demand on the Mend

A 16% gain in quarterly revenue for Unilever Plc’s Indian unit, the biggest since December 2011, signals that consumer demand may be rebounding in the South Asian economy after a record contraction in the April-June period.

Revenue at Hindustan Unilever Ltd., Asia’s biggest maker of personal care products by market value, rose to 112.8 billion rupees ($1.5 billion) in the September quarter, while net income increased 8.6% to 20.1 billion rupees. That exceeded the 19.1 billion rupees profit forecast by analysts in a Bloomberg survey.

However, a volume growth of just 3% and a delay in the pre-season trade offtake of the company’s winter products are concerns being cited by analysts. While good monsoon rains boosted rural demand, the outlook for urban growth looks a little uncertain, the company said Tuesday.

Shares dropped 0.8% in a second day of declines on Wednesday, even as India’s benchmark stock index advanced.

Here’s what brokerages are saying:

Jefferies (Vivek Maheshwari)

  • A 10% growth in health, hygiene and nutrition portfolio is positive and shows marked improvement from April-June; skincare, cosmetics, along with out-of-home products like ice cream declined 25% but show sharp sequential recovery
  • Slow trade offtake on winter portfolio of products pre-season is key concern given its importance in 3Q revenues, margins
  • Outlook cautiously optimistic; rated Buy with PT 2,650 rupees

Prabhudas Lilladher (Amnish Aggarwal)

  • Upgrades stock to buy on strong growth and margin outlook; 15-month PT 2,502 rupees
  • Company confident of gaining market share across categories and has cut prices of detergent and absorbed partial input cost in tea
  • Structurally positive on company given its strategy around emerging categories, increasing distribution, digital market and strength in supply chain

ICICI Securities (Manoj Menon)

  • Strong double-digit growth in health, hygiene and nutrition portfolio was good; there appears a willingness to sacrifice gross margins to drive growth
  • Pre-season trade of winter products is tad delayed; company expects growth in nutrition products to return as supply-side constraints are now being resolved
  • Maintain add with PT 2,400 rupees

Motilal Oswal (Krishnan Sambamoorthy)

  • Gain in market share has increased penetration in 70% of the portfolio compared to pre-COVID levels
  • Remains positive on stock from a medium-term perspective, led by robust earnings growth potential owing to portfolio and execution strength; premium valuation is likely to sustain
  • Maintain buy with PT 2,620 rupees; company likely to post superior earnings growth in times of relative normalcy

JM Financial Institutional Securities (Richard Liu)

  • Earnings in-line with brokerage’s forecast with no major surprise; expect stock to trade in range in absence of major triggers
  • Co. management concerned about cost inflation, adverse sales-mix due to slower growth in personal products portfolio
  • Maintain hold with PT of 2,125 rupees

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