Home >market >stock-market-news >Brokerages revise HUL stock outlook

Mumbai: Close to 30 brokerages have revised their ratings with 15 having a “sell" on the shares of Hindustan Unilever Ltd (HUL), India’s largest consumer packaged goods company by sales, after announcing disappointing June quarter results on Friday, according to Bloomberg data.

Mint could not ascertain the previous ratings of the stock by these brokerages.

The HUL stock has lost 6.96% since Friday. On Monday, it ended at 638.70 per share on BSE, down 3.71% while India’s benchmark Sensex fell 0.78% to close at 19,593.28 points.

“We believe that with valuations at 36 times of estimated financial (year) 2015 earnings, coupled with weak consumer environment (which is already reflecting in the performance), there is a significant scope for de-rating going forward," said analyst Sameer Deshmukh of Tata Securities Ltd in a 29 July report. “We maintain our ‘sell’ rating on the stock with a revised target price of 482/share, a downside of 27% from the current levels."

“Demand environment remains weak, and in this context price increases may not be easy for HUL," said Percy Panthaki and Avi Mehta of India Infoline Ltd’s institutional equities research desk in a 29 July report with a “sell" rating.

In the June quarter, HUL reported 4% volume growth, the lowest in the past 14 quarters. The impact of the economic slowdown, which saw consumers cut back on spends and slow growth across segments in urban and rural India, brought overall sales growth at 7.1% for the June quarter from 13.1% in the April quarter.

Across segments, growth remained low except in beverages, which posted a 15.8% increase from a year ago. Soaps and detergents witnessed growth of 7.7% from a year ago, with personal products posting growth of 2%, the lowest in 17 quarters. Foods grew at 4.8% in the same period.

Analysts feel the company has lost its pricing power. “Pricing has disappeared (from 10% in December 2012 to 6% in March 2013 to 3% in June 2013)," said analysts Pritesh Chheda and Prashant Kutty of Emkay Global Financial Services Ltd in their 29 July report with a “sell" rating that came after the company announced its results on Friday.

“The slowdown in economic growth has started impacting discretionary spends, which has had a trickling effect on the country’s largest FMCG player," analysts Sanjay Manyal and Parineeta Poddar of ICICI Securities Ltd said in a 27 July report that had a “sell" rating, adding that they expect the company’s revenue growth at 7.4% for the full fiscal 2014.

HUL is up against numerous challenges that should keep earnings growth subdued for the next two financial years, said analyst Aashish Upganlawar of Elara Securities (India) Pvt. Ltd in a 28 July report that had a “sell" rating while outlining the key challenges as rupee depreciation and an increase in raw material costs squeeze margins.

Even the increase in royalty will hurt its operating profit as sales growth slows, analysts said. Moreover, the company also has to adjust to a higher tax rate—from 24.5% in fiscal 2013 to 30-32% by fiscal 2015 as the free excise zone duties get over.

“There is a significant slowdown across the categories from early 2012 to 2013. The slowdown is similar across rural and urban India. The impact can be seen on volumes as people are cutting down on spends," Nitin Paranjpe, HUL’s chief executive officer and managing director, told the media on Friday. He is set to take up a new role at parent Unilever Plc from 1 October

Subscribe to newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperLivemint.com is now on Telegram. Join Livemint channel in your Telegram and stay updated

My Reads Logout