Here’s Why Analysts Remain Bullish On HUL After Q2 Results

Analysts maintained their bullish investment recommendation on Hindustan Unilever Ltd. after the nation’s largest consumer goods maker’s margin expanded and profit met estimates in the quarter ended September.

Net profit of the company rose 21.2 percent year-on-year to Rs 1,848 crore in the July-September period, according to an exchange filing. Its revenue rose 6.7 percent to Rs 9,852 crore.

A fall in input costs along with lower corporate taxes led to an increase in margin. HUL’s operating margin expanded 290 basis points to 24.80 percent during the second quarter.

But its volume growth failed to pick up as India continues to battle an economic slowdown. But that didn’t deter a few analysts to raise their target price for HUL.

Here’s what brokerages made of HUL Q2 Results 2019-20:

CLSA

• Maintains ‘Outperform’ and hikes target price to Rs 2,250 from Rs 2,135 apiece.
• Second quarter ahead of estimates led by higher margins; volume growth a shade better.
• Strong margin gains seen in home care and personal care.
• Demand outlook is a bit challenging with different states showing different trends.

Edelweiss

• Maintains ‘Buy’ with a target price of Rs 2,250 apiece.
• Robust growth in tough quarter; margin expansion impressive.
• With good monsoons and direct transfers to farmer volume growth to be aided.
• Delay in merger approval was the only negative during the quarter.

Macquarie

• Maintains ‘Outperform’ and hikes target price to Rs 2,383 from Rs 2,041.
• Strong margin expansion despite higher advertisement spends; could be best operational numbers in FMCG.
• Ecosystem suitable for market share gains; rural growth can turnaround.
• Biggest surprise in earnings has been margin levers, which is still not exhausted.

UBS

• Maintains ‘Neutral’ with a target price of Rs 2,150 apiece.
• Price cuts and depressed demand environment results into lower revenue outlook.
• Risk reward unattractive at present valuations.

JPMorgan

• Maintains ‘Neutral’ with a target price of Rs 2,120 apiece.
• In line operating performance; does well in tough environment.
• Good margin delivery aided by benign commodity costs, improved mix and cost savings.
• Subdued near-term demand outlook; sequential deceleration in rural demand.

BofAML

• Maintains ‘Buy’ with a target price of Rs 2,250 apiece.
• Strong show continues despite challenges.
• Weak demand, but benign costs and less competition help.
• Resilient EPS growth to support premium valuations.

Morgan Stanley

• Stays ‘Equal Weight’ and target price maintained at Rs 1,900 apiece.
• Volumes growth ahead of estimates.
• Continuing strong operational margins.
• Driven by mix improvement and input costs.
• Company saw higher realisations in the quarter.