After Q2 results, HUL and JSW Steel shares in focus. What analysts say | Mint
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Business News/ Markets / Stock Markets/  After Q2 results, HUL and JSW Steel shares in focus. What analysts say
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After Q2 results, HUL and JSW Steel shares in focus. What analysts say

While HUL posted double-digit growth in its PAT and revenue during the quarter, on the other hand, JSW Steel witnessed a wider than expected loss in the bottom-line front but upside the revenue.

There is potential for further upside in both HUL and JSW Steel shares. (iStock)Premium
There is potential for further upside in both HUL and JSW Steel shares. (iStock)

The shares of Hindustan Unilever (HUL) and JSW Steel will be in focus on Tuesday under the FMCG and metal basket as the companies have announced their financial performance for the quarter ending September 30, 2022 (Q2FY23) period. While HUL posted double-digit growth in its PAT and revenue during the quarter, on the other hand, JSW Steel witnessed a wider than expected loss in the bottom-line front but upside the revenue. There is potential for further upside in both HUL and JSW Steel shares.

The markets will be closed on Monday next week due to the celebration of Diwali across India.

Hindustan Unilever (HUL):

This FMCG giant delivered a strong performance in the quarter with turnover growth of 16% and underlying volume growth of 4%. On a standalone basis, HUL garnered a net profit of 2,616 crore rising by 19.6% from 2,187 crore in Q2FY22. Revenue from operations grew by 15.9% to 14,751 crore as against 12,724 crore in the same quarter last year. EBITDA margin at 23.3% remained healthy despite the unprecedented inflation in input costs. YoY EBITDA margin declined 180 bps.

Also, the company announced an interim dividend of 17 per equity shares having a face value of Re 1 each for the financial year ending March 31st, 2023. The company has fixed November 2 as the record date to determine eligible shareholders for the dividend, while the payout is planned to be carried on or after November 17.

Amnish Aggarwal – Head of Research - Prabhudas Lilladher highlighted that in the home care segment, the company recorded double-digit volume growth with Fabric Wash and Household Care growing in high double-digits. While the beauty and personal care segment was led by outperformance in the premium portfolio. Skin Cleansing delivered strong double-digit growth led by Beauty and Premium Brands.

Further, the analyst pointed out that growth in foods & refreshment was led by solid performance in Foods, Coffee, and Ice-cream. Foods delivered strong double-digit growth with volumes growing in mid-teens. Additionally, calibrated price have been taken across categories to partly offset the significant inflation in input costs.

On valuation, Aggarwal said, "The quarter saw high-priced inventory come into the system which led to sharp gross margin slippage of 580bps YoY to 45.8%. EBITDA margins at 22.9% were managed due to cut in ad spends (250bps) and lower other expenses (180bps). We expect inflationary pressure to have peaked out and expect sequential margin recovery. We will revisit our numbers post-earnings call. We have an Accumulate rating on the stock with a TP of Rs2827."

On BSE, HUL shares closed at 2,655.05 apiece up by 2.11%. The company's market valuation is nearly 6.24 lakh crore.

Year-to-date, the stock has climbed by more than 12% on Dalal Street. In a year, HUL shares have climbed over 8%.

JSW Steel:

In the second quarter of FY23, JSW Steel posted a net loss of 915 crore compared to a profit of 7,179 crore in Q2FY22. The company's PAT was at 839 crore in Q1FY23.

However, the company recorded a growth in consolidated revenue to 41,122 crore in Q2FY23 against 31,909 crore in Q2FY22 and 37,500 crore in Q1FY23.

JSW Steel said, the domestic steel industry witnessed demand growth with consumption at 27.93 million tonnes in Q2FY23, up by 13% yoy and 1.6% qoq supported by a strong automotive sector and demand from the infrastructure sector.

However, the imposition of export duty on finished steel products in May this year had made exports unattractive, with Q2FY23 exports from India at 1.41 million tonnes --- lower by 66.4% yoy and 35.6% qoq.

JSW Steel's overall consolidated steel production stood at 5.66 million tonnes and saleable steel sales at 5.74 million tonnes in Q2FY23.

On JSW Steel, Mitul Shah - Head of Research at Reliance Securities stated that the company reported a highly subdued 2QFY23 performance with EBITDA margin coming in at 4.2%, versus their estimate of 11.1%.

The Reliance Securities expert added, "Revenue grew by 29% YoY (up 10% QoQ) to Rs418 billion, as against our estimate of Rs392 billion. Sales volume increased by a healthy 32% YoY (up 24% QoQ) to 5.01mnT; 4.2% above our estimate of 4.81mnT. Realisation decreased sharply by 12% YoY and 16% QoQ to Rs64,858/tonne, broadly in line with our estimate of Rs64,681/tonne."

Also, he added, "EBITDA de-grew by 83% YoY and 59% QoQ to Rs17.5bn, 60% below our estimate of Rs43.7bn due to higher RM prices, while margins stood at 4.2%, 695bps below our estimate of 11.1%. EBITDA/tonne fell significantly by 87% YoY and 67% QoQ to Rs3,497 (vs. our estimate Rs9,088) due to higher input costs, mainly due to elevated coking coal prices and lag effect in realising benefit of its fall."

On the company's valuation, Shah said, "While JSW steel reported subdued realisation during the quarter. Sales volume was above our estimate but EBITDA came under extreme pressure due to higher cost. JSTL has been the fastest-growing company in the Indian steel sector with capacity and volume growth of 10.3%/9.5% CAGR over the past 11 years. The company has the lowest conversion cost within India and scores very high compared to global peers as well. We currently have a BUY rating on the stock."

On BSE, JSW Steel shares closed at 622 apiece down by 1.03%. The company's market cap is over 1.50 lakh crore.

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Published: 21 Oct 2022, 10:17 PM IST
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