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Business News/ Markets / Stock Markets/  Hindustan Unilever share price falls over 2% as Q1 results disappoint; Should you buy? Here is what brokerages say
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Hindustan Unilever share price falls over 2% as Q1 results disappoint; Should you buy? Here is what brokerages say

Hindustan Unilever reported a standalone net profit for the quarter ended June 30, 2023 at ₹2,472 crore, up 8% from ₹2,289 crore in the year ago period. However, net profit dropped 10% sequentially from ₹2,553 crore.

Brokerages flagged concerns over Hindustan Unilever's lower than expected volume growth as higher inflation is adversely impacting consumer spending.Premium
Brokerages flagged concerns over Hindustan Unilever's lower than expected volume growth as higher inflation is adversely impacting consumer spending.

Hindustan Unilever Ltd (HUL) share price fell over 2% on Friday after the company’s June quarter earnings disappointed with below estimate volume growth. The stock price fell as much as 2.35% to 2,638.60 apiece on the BSE.

The FMCG giant reported a standalone net profit for the quarter ended June 30, 2023 at 2,472 crore, up 8% from 2,289 crore in the year ago period. However, net profit dropped 10% sequentially from 2,553 crore.

Total standalone sales registered a growth of 7% YoY to 14,931 crore.

Domestic volume growth of Hindustan Unilever was at 3%, missing estimates significantly.

EBITDA in Q1FY24 rose 8.6% to 3,521 crore, while EBITDA  margins improved by 40 bps YoY to 23.6%.

Read here: HUL Q1 results: Net Profit rises 8% to come in at 2,472 crore

During the quarter, performance was driven by sustained double-digit growth in home care, which grew 10% on a high base of last year. Beauty & personal care and foods & refreshments’ performance remained muted with mid-single digit growth. 

Brokerages flagged concerns over HUL’s lower than expected volume growth as higher inflation is adversely impacting consumer spending. Here’s what brokerages have to say:

Motilal Oswal Financial Services

Hindustan Unilever’s 1QFY24 performance fell slightly short of Motilal Oswal Financial Services’ expectations. During the quarter, volumes grew 3% YoY versus expectation of 7% growth.

The brokerage firm cut its EPS estimates by around 3-4% for FY24/FY25 to reflect the management commentary on demand, pricing, higher brand investment, and higher tax rates.

“Despite its expanded scale, HUL sustains its dexterity, outperforming peers and maintaining a trajectory of steady growth. With improving commentary on rural recovery and commodity cost reductions, we are optimistic that HUL will return to the mid-to-high teens earnings growth trajectory that it exhibited for four years before the pandemic," said the brokerage.

It reiterated ‘Buy’ rating with a target price of 3,100 per share.

Kotak Institutional Equities

The brokerage believes HUL’s growth was impacted by trade destocking in light of price cuts, consumers still consuming high-cost inventory and resurgence of smaller players in select categories such as tea and detergent bars.

“The near-term outlook is muted in view of the timing mismatch between price cuts and associated volume growth recovery and increase in A&P spends and gross margin recovery. Management’s commentary on rural areas was mixed given the weather-related risks. We expect back-ended improvement in operating performance in FY2024E," it said.

The brokerage trimmed FY2024-26E EPS by 1-2%, roll over. It has an ‘Add’ rating and raised the target price to 2,835 per share from 2,750 earlier.

Antique Stock Broking

Hindustan Unilever’s (HUL) Q1FY24 operating performance was below expectations with underlying domestic revenue/ volume growth of 7%/ 3%. Management indicated near term demand remains challenging and expects a gradual volume-led recovery over the coming quarters, the brokerage noted. 

“Post the Q1FY24 performance, we cut our earnings estimates by 2% and 1% for FY24 and FY25. We expect HUL to deliver sales/ earnings CAGR of 10%/ 15% over FY23–25E. We expect gradual recovery in volume with moderation of inflation" it said.

It maintained a ‘Buy’ rating and cut the target price to 3,000 per share from 3,027 earlier.

Prabhudas Lilladher 

Prabhudas Lilladher cut its FY24/25 EPS by 5.3%/4.8% and rating to HOLD factoring in tepid volume growth in 1Q in F&R and Personal wash, waning impact of pricing as HUL cuts prices to ward off competition from local/regional players and higher tax rates.

“Although, long term growth story led by lower penetration and superior value proposition remains, near term pressure on growth can’t be ruled out. We expect GM/EBITDAM improvement of 460/100 bps over FY23-25 as benefits of lower RM will be partly neutralized by higher ad spends, royalty and lower operating income due to closure of marketing agreement with GSK Asia post Oct 23," it said.

It estimates 8.7% Sales and 9.3% PAT CAGR over FY23-25. The brokerage downgraded the stock to Hold and cut the target price to 2,775 per share from 2,825 earlier.

At 10:55 am, the shares of Hindustan Unilever were trading 1.79% lower at 2,654.10 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 21 Jul 2023, 10:49 AM IST
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