HUL slumps to six-month low after brokerage downgrades
At least 10 brokerages caution investors and criticize HUL’s decision to pay a higher royalty to parent
Mumbai: The stock of Hindustan Unilever Ltd (HUL), India’s largest packaged consumer goods maker, fell to a six-month low on Wednesday after brokerages lowered their outlook on the stock following the firm’s decision to increase royalty payments to parent Unilever Plc.
HUL fell 4.43% to ₹ 460.20 on BSE Ltd. The benchmark Sensex gained 0.23% to 20,026.61 points.
At least 10 brokerages including Morgan Stanley, JP Morgan Chase and Co., Credit Suisse, Tata Securities Ltd, Karvy Stock Broking Ltd, Nomura and Edelweiss Securities Ltd cautioned investors and criticized its decision to pay a higher royalty to its Anglo-Dutch parent.
The stock has dropped 7.19% after HUL announced its earnings on Tuesday, when it also said the royalty payment will rise to 3.15% of net sales from 1.4% by 2018 in phases. The company reported a 15.5% increase in net profit, while net sales grew 10.1% from the year earlier.
HUL reported its slowest volume growth in 12 quarters.
Edelweiss Securities downgraded the stock to reduce because of a “slowdown in earnings due to royalty and taxes".
Tata Securities pegged the incremental royalty payment for FY14 at ₹ 140 crore, or 4% of profit after tax.
The royalty payment increase has drawn flak from several proxy advisory firms as well.
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