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Business News/ Market / Stock-market-news/  HUL shares close slightly lower after volumes dip for second consecutive quarter
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HUL shares close slightly lower after volumes dip for second consecutive quarter

Hindustan Unilever's margins will remain under pressure in an inflationary environment with subdued demand, analysts say

Hindustan Unilever reported a 1.24% fall in revenue from a year-ago period to Rs8,226.5 crore while net profit rose 6.83% to Rs1,037.9 crore. Photo: Pradeep Gaur/ MintPremium
Hindustan Unilever reported a 1.24% fall in revenue from a year-ago period to Rs8,226.5 crore while net profit rose 6.83% to Rs1,037.9 crore. Photo: Pradeep Gaur/ Mint

Mumbai: Shares of Hindustan Unilever Ltd (HUL) on Tuesday fell as much as 2.35% after its volumes dropped for the second consecutive quarter.

The stock touched a low of Rs843 a share in intraday before closing at Rs860.95.

The HUL stock closed down 0.27% at Rs860.95 against the previous session’s closing of Rs863.25 while India’s benchmark closed up 0.95%.

For December quarter, HUL reported 4% fall in volume against 1% decline in September quarter as customers cut back spending even on essentials following the cash crunch triggered by the scrapping of high-value banknotes on 8 November.

One of the reasons for the fall in the stock price is that despite of doing better than expected the company said that “the recovery will be gradual" indicating that it will be a while before consumer demand comes back to normal levels.

As such brokerage firms Bank of America Merrill Lynch, Antique Broking Securities Ltd and Jefferries India Ltd had forecasted a steeper decline in volumes.

For instance, Bank of America Merrill Lynch and Antique Broking Securities expected volumes to fall 5% each, while Jefferies India expected 8% drop in volumes.

“HUL will witness recovery in revenue and earnings from second quarter of financial year 2018 as in the near term the operating environment will be challenging. Near term demand is expected to remain under pressure from moderate off-take by the trade and product price hikes. We believe that revenue growth will witness marked improvement primarily from 2HFY18 backed by recovery in rural demand," Antique Stock Broking firm said in a report to its investors.

The company reported 1.24% fall in revenue from a year ago to Rs8,226.5 crore while net profit rose 6.83% to Rs1,037.9 crore on the back of one-time exceptional item, which was a sale of property.

The company also managed its costs in lieu of rising input costs by moderating its advertising and promotion spends. HUL reported 80 basis points decline in operating profit margin. One basis point is a hundredth of a percentage point.

Meanwhile, as prices of palm oil and crude increased it also pushed up manufacturing costs. As such a fall in revenue was lower than the volume decline as the company raised prices by 4% largely in some personal care and home care products.

However, margins will remain under pressure in an inflationary environment with subdued demand. “While HUL continues to commit to “moderate margin expansion," said the UBS report adding we believe it is necessary as the market leader to channel some margins toward new consumer recruitment, particularly in mass-market segments. Focusing on margins may not be appropriate given feeble demand conditions".

The company, however, is on track to meet with its earnings estimates led by value growth, said analysts.

“We are at the beginning of inflation led revenue growth for the HUL in financial year 2018 and 2019 estimates.However, given the likely feeble rural consumption recovery analyst sees difficulty in implementing price hikes without affecting volumes," said the UBS report.

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Published: 24 Jan 2017, 03:14 PM IST
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