HUL To Boost Margins, Earnings In Second Half, Say Top Brokerages
Shares of Hindustan Unilever gained after Jefferies initiated coverage a ‘buy’.
Hindustan Unilever Ltd. is expected to boost its margins in the second half of the fiscal as consumer goods companies benefit from improving consumption and cooling prices, according to top brokerages.
Earnings growth for the maker Dove shampoo is set to accelerate in six months through March as inflation headwinds subside, and demand environment improves, Jefferies said in a Sept. 22 report note. It forecasts 12% annual growth in revenue with 60-basis-point improvement in operating margin.
HUL has maintained pricing in portfolio, which would benefit from lower palm oil prices (skin cleaning, hair care), Jefferies said in Sept. 22 report. However, further product price hikes have been implanted in categories such as laundry, household care, skin care, and foods, it said.
According to Nomura's Sept. 22 report, HUL will benefit from demand uncoiling in out-of-home categories as the economy has largely opened up.
HUL’s enhanced digital capabilities, nano-factories and Shikhar app will help it in taking correct steps, launch niche products and leverage data analytics-based consumer insights and geo-targeted distribution, it said. That, it said, will aid in succeeding in the emerging segment of direct-to-consumer and digital-first products.
HUL shares were trading 0.18% lower on Friday at 12:38 p.m. compared with 1.12% decline in the benchmark Nifty 50. Trading volume is nearly twice the 30-day average. The stock is up more than 4% for the week, in line with the rise in the FMCG Index.
Consumer-facing companies, expecting bumper sales in the forthcoming festive season, have ramped up supply chains and marketing efforts.
Jefferies said its interactions indicate that FMGC market's second-quarter growth remained similar to that in the previous three months. Industry estimates the value to grow in mid-single digit, and volumes to be "flattish" on a three-year CAGR basis.
The report said media spends for the FMCG industry remain similar to that seen in the June quarter. But, it said, this could inch higher in second half of fiscal as companies reinvest some gains from lower input prices to drive volume growth.
Both Nomura and Jefferies have retained 'buy' calls on HUL. Of the 42 analysts tracking the company, 31 maintain a 'buy', nine suggest a 'hold' and two recommend a 'sell', according to Bloomberg data. The average of price targets suggests a return potential of 2.9%.
What Analysts Are Saying
Jefferies
The research firm values HUL at 60 times June 2024 earnings, slightly higher than 5-year average, to arrive at a price target of Rs 3,050, a potential upside of 16%.
Key risks include further increase in raw material prices, sharper-than-expected rural slowdown, de-rating of consumer multiples.
Forecasts EPS to rise 14% CAGR over FY22-25E.
Nomura
Despite sharp price hikes, HUL has managed to drive volume growth much higher than for the industry.
It has expanded its market share meaningfully by providing better price-value equation to consumer in an inflationary environment.
HUL has one of the better arsenals versus peers in the FMCG sector to land price hikes, play the price-point portfolio pyramid and claw back margins.
Nomura's target price for HUL is Rs 2,975 apiece, suggesting an upside of 15%.