Hindustan Unilever (HUL) share price fell nearly 4 per cent to Rs 1,971.45 apiece on BSE on Tuesday, extending the year-to-date fall to 16.3 per cent. In an end of quarter update (4QFY22), the company said sharp inflation was affecting consumption. Cumulative growth, for categories in which HUL is present, was flat with a high single-digit volume decline in Jan-Feb’21, said Motilal Oswal Financial Services in a report. The stock has been on a losing spree, falling 16 per cent in one year, 29 per cent in the last six months, and 13 per cent in the past one month. Analysts say that rising oil prices created by the volatile Russia-Ukraine stalemate has led to a heavy sell-off in the FMCG stocks, especially HUL. “However, even though margins remain impacted due to a higher inflationary environment, stock price levels close to 1860-1900 are an excellent support base. 2110 remains a massive resistance,” AR Ramachandran, Co-founder & Trainer, Tips2Trades, told FinancialExpress.com. Ramachandran advised long-term investors to start accumulating in small quantities from support levels.
HUL had a disappointing last quarter and with an increase in inflation it might continue to have a negative impact on the stock for a short term, said an analyst. “Although these things are short term and HUL has strong fundamentals and hence it is at lucrative levels for the long-term investors,” Likhita Chepa, Senior Research Analyst at CapitalVia Global Research, told FinancialExpress.com. Chepa added that In the short term with lower demand in the market HUL might see further correction but long term investors should take it as an opportunity to accumulate the stock at the lower levels as it can provide good returns with return in demand.
Motilal Oswal, Edelweiss see up to 22% potential upside in HUL stock
Domestic research and brokerage firms Motilal Oswal Financial Services and Edelweiss see potential rally of up to 22 per cent in the stock. Motilal Oswal has recommended to ‘buy’ the stock with a target price of Rs 2,500 apiece (22% upside), while Edelweiss has an ‘overweight’ rating to it with a price target of Rs 2,330 apiece (13.6 per cent gain). The management had called out increasing raw material pressures in its 3QFY22 result call. “The Ukraine crisis has further exacerbated cost inflation, particularly in palm oil and crude-related raw materials like LAB, soda ash, and packaging costs, all of which have seen a sharp sequential inflation. A greater impact of the Ukraine crisis will result in higher inflation in coming months,” Motilal Oswal said.
The brokerage firm also added that Hindustan Unilever’s earnings have underperformed that of peers in recent quarters owing to a higher proportion of the Discretionary/OOH portfolio at 15-20% of sales, and steep commodity cost inflation in its three largest categories – Soaps, Detergents, and Dish Wash. Both these negatives continue to be at play with further material cost increases and delayed recovery in the growth in premium products.
What’s causing HUL stock price correction?
Edelweiss noted that non-structural factors like FII (Foreign institutional investors) selling and anticipation of rural slow down led to sharp stock price correction in HUL. HUL has taken three more rounds of price hikes in Q4FY22 (though not in the same product/SKUs); “we expect more hikes in Q1FY23, in line with price hikes taken in Q3FY22,” it added. The research firm also noted that in the calendar year so far, the spike in global food prices has been around 25 per cent, amid the Russia-Ukraine conflict, which will eventually filter into domestic prices, giving farm incomes a boost.
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