Brokerages worry about HUL’s volume growth

Shares of FMCG major Hindustan Unilever were trading lower by 0.17% at Rs 2,542 after the company reported an increase of 10.7% in its consolidated net profit at Rs 2,185 crore for the second quarter ended September 2021. The company had posted a net profit of Rs 1,974 crore in the same quarter of the previous fiscal. On a sequential basis that is Q1FY22 the company posted a consolidated net profit of Rs 2,100 crore.

Its net sales during the quarter under review stood at Rs 12,812 crore, up 11.31%, as against Rs 11,510 crore in the corresponding period a year ago, Hindustan Unilever Ltd (HUL) said in a regulatory filing.

EBITDA (Earnings Before Interest Tax Depreciation & Amortization) margin was stepped up sequentially vs Q1FY21 and is at 25%. Margins were aided by companies focused actions towards net revenue management and savings have enabled us to manage inflationary pressures.

The company has also declared an interim dividend of Rs 15 per equity share for the financial year ending 31 March, 2022.

The company’s underlying volume growth in Q2 stood at 4% versus a street expectation of 5-8% and this has disappointed analysts on the street. Here is what they have to say.

Credit Suisse | Rating: Outperform | Price target: Rs 2,800

Credit Suisse has lowered its FY22-24 estimated by 3-4% citing weak volume growth & rural slowdown in Nielsen data cast a shadow on future growth for the company. Also, the much higher base in the second half of FY22 could be downside risks to near-term volume growth. The global brokerage firm cut its price to Rs 2,800 from earlier Rs 2,900.

Goldman Sachs | Rating: Neutral | Price target: Rs 2,167

HUL’s earnings were in line with expectations but flags risks to rural demand and inflationary pressure. Expect a 4% volume and 10% revenue growth for Q3FY22. Citing this Goldman has lowered FY22-24 EPS (Earnings Per Share) estimates by less a per cent.

Prabhudas Lilladher | Rating: Accumulate | Price target: Rs 2,930

HUL will face margin pressures in the near term however initiatives taken in BPC (Beauty & Personal Care) and Nutrition segments should play out over the medium-term offering growth momentum. Expect 10.9% Sales and 15% PAT CAGR over FY22-23 and assign a DCF based target price of Rs 2,930.

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