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HUL Q1 Results: Most Brokerages Stay Bullish Despite Near-Term Margin Pressures

Here’s what brokerages have to say about HUL’s first-quarter performance:

HUL detergent brand Surf Excel at a supermarket in Mumbai. (Photographer. Santosh Verma/Bloomberg News.)
HUL detergent brand Surf Excel at a supermarket in Mumbai. (Photographer. Santosh Verma/Bloomberg News.)

Brokerages expect Hindustan Unilever Ltd.’s discretionary portfolio to rebound as mobility increases with gradual easing of Covid-19 restrictions but they remain concerned over the impact of input cost inflation on the company’s margin.

The nation’s largest consumer goods maker saw its net profit and revenue fall sequentially in the three months ended June. Its margin, too, contracted. Volumes, however, jumped over the year earlier on a low base but the growth slowed quarter-on-quarter.

Ritesh Tiwari, HUL’s newly appointed chief financial officer, said the company would need to navigate the next couple of quarters of “very high inflation”.

Prabhudas Lilladher downgraded the FMCG stock as it expects the maker of Lux soaps to underperform in the near term.

Shares of HUL dropped as much as 0.67 percent compared with a 0.14% fall in the benchmark Nifty 50. Of the 40 analysts tracking the stock, 31 have a ‘buy’ rating, five suggest a ‘hold’ and four recommend a ‘sell’, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 12.6%.

Opinion
HUL Q1 Results: Profit Misses Estimates, Margin Contracts

Here’s what brokerages have to say about HUL’s first-quarter performance:

Emkay

  • Maintains ‘hold’ rating and lowers target price by 0.9% to Rs 2,330 apiece.

  • Reopening and increased mobility should benefit HUL, gains will likely be gradual.

  • Input inflation remains high and management commentary was indicative of a slower improvement in margins.

  • With growth lagging peers, management seems to be focused more on reviving growth than improving margins in the near term.

Jefferies

  • Maintains ‘buy’ with an unchanged target price of Rs 2,850 apiece.

  • HUL slightly missed Ebitda forecast despite in-line revenues as gross margin compression was higher than forecast.

  • HUL has been in a tough spot in the past few quarters given higher pressures due to Covid restrictions as well as sharp input price inflation, versus most of its peers.

  • Product price hikes are underway which would show up in second half of FY22.

  • Ad-spend stood at 8.7% of revenue versus 10-12% in the last three quarters. This partly offset the impact of input inflation, and Ebitda margin dip was contained at 50 bps quarter-on-quarter to 23.9%.

Motilal Oswal

  • Maintains ‘buy’ with a target price of Rs 2,840 apiece.

  • Sales in the June were reportedly back to levels seen before the second Covid wave witnessed in March, and augurs well for discretionary sales and margin.

  • With discretionary demand back on the recovery path, mix improvements will play a major role in driving a gradual margin improvement sequentially.

  • While elevated material cost remains a near-term worry — a potential revival in EPS growth momentum after a relative lull in recent quarters, continued synergies from GlaxoSmithKline (tracking ahead of expectations so far), HUL pulling further ahead of peers in terms of technology and analytics and strong track record in recent

    years lead the brokerage to maintain its ‘buy’ rating on the stock.

Prabhudas Lilladher

  • Downgraded the stock to ‘accumulate’ from ‘buy’ with a target price of Rs 2,535 per share.

  • Despite the near term challenges, remains positive on the structural story.

  • More than 80% of business gaining penetration.

  • Health food drinks segment is likely to emerge as a key driver of growth with launch of Rs 2 and Rs 5 pack of Horlicks and Boost and benefits of expansion in distribution and integration post October-December quarter.

  • Rebound in discretionary portfolio with easing of restrictions and improvement in mobility.

  • Strong growth in e-commerce channel which already accounts for 10% of revenue.

  • Gains from strategies like winning in many India and Shikhar driving distribution led gains.

Opinion
HUL Q1 Review - Growth Intact But Moderate Margin Expectations: Prabhudas Lilladher