Motilal Oswal Raises HUL Target Price; Stock Rallies As Much As 5.5%
HUL is likely to clock an 18-19 percent annualised earnings growth over the next two years, says MOSL.
Hindustan Unilever Ltd.’s shares jumped 5.5 percent intraday to an all-time high as Motilal Oswal Ltd. forecast an “impressive” earnings growth for the company in the next two years, and raised the target price.
The consumer goods maker is likely to clock an 18-19 percent annualised earnings growth over the next two years, according to a research report by the brokerage. That, according to the report, was due to a favourable base in the next few quarters, demand recovery from the second quarter of next year and price increase in soaps and lower crude oil costs.
This comes as India’s largest consumer goods maker delivered 5 percent volume growth for three-straight quarters. “As the base gets favourable, starting the fourth quarter of current fiscal, HUL’s performance on volumes is likely to improve gradually,” Motilal Oswal said.
Premiumisation, Price Hikes
The brokerage also said premiumisation has been very strong for HUL in recent years, mainly from its ‘Matic’ detergent brand, and the overall momentum is likely to sustain in the future.
Also, the company, in a post-earnings conference call, said it may take a 5-6 percent price increase in the skin cleansing category on account of ongoing price increases in palm oil. “We believe the full effect of this price increase will be witnessed from the June quarter next year,” the report said.
Margin Trajectory
The premiumisation push, coupled with the rigorous focus on cost savings, has meant an “unprecedented” earnings before interest, taxes, depreciation, and amortisation margin improvement of over 900 basis points year-on-year over the past 10 years, added the brokerage.
Moreover, if trends in the factors leading to HUL’s strong earnings growth in recent years sustain momentum, our forecasts on operating margin expansion of 90 basis points/50 bps in FY21/FY22 could be surpassed. This is not unlikely given the past 5 years’ EBITDA margin expansion of 830 bps.Motilal Oswal Report
Motilal Oswal raised the target price on the HUL stock from Rs 2,280 apiece to Rs 2,490, which represents a 16 percent upside from Tuesday’s closing price. The brokerage retained the ‘Buy’ rating on the stock.
On Wednesday, shares of HUL surged as much as 5.5 percent to an all-time high of Rs 2,272 apiece compared with the NSE Nifty 50’s 0.84 percent gain.
