HUL posts 7% PAT growth in Q4, should you buy?

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New Delhi | Updated: May 10, 2016 1:16:57 PM

HUL registered an increase of 7.02 per cent in standalone net profit at Rs 1,089.59 crore for the fourth quarter ended March 31, 2016.

HUL shares q4 resultsThe FMCG major registered an increase of 7.02 per cent in standalone net profit at Rs 1,089.59 crore for the fourth quarter ended March 31, 2016.(Reuters)

Hindustan Unilever (HUL) on Monday reported mixed set of financial results for the fourth quarter ended March 2016. The FMCG major registered an increase of 7.02 per cent in standalone net profit at Rs 1,089.59 crore for the fourth quarter ended March 31, 2016. The company had posted a net profit of Rs 1,018.08 crore in the January-March quarter of the preceding fiscal.

The company’s net sales grew by 3.36 per cent to Rs 7,809.40 crore during the quarter under review as against Rs 7,555.00 crore in the year-ago period.

However, other income of the company slid 16.42 per cent year-on-year to Rs 82.25 crore.

According to market experts, HUL with its market leadership in categories like soaps and detergents, packaged foods, premium personal care products, etc., the company has delivered another quarter of profitable growth and with its continuation of investment behind brands sustained at competitive levels. However, “The business environment remained challenging for HUL with weakening demand from rural and urban market and management remains cautious for demand from rural area,” said KR Choksey Shares & Securities in a research report.

Gross margins for Jan-March 2016 period witnessed 240 basis points improvement to 51.7 per cent although it was lower compared to 330 basis points improvement in 9MFY16. EBITDA margins increased by 130 basis points to 18.5 per cent.

Post the Q4 results, Reliance Securities in a research note said, “HUL Q4 results were mixed with the volumes coming in lower than our estimates. However, We expect higher revenue growth in the coming quarters as HUL starts taking selective price increases across categories. However substantial margin improvement from the current levels looks improbable, in our view. Revival in rural demand would be a key factor to watch, especially towards the second half of FY17. We revise our rating on HUL shares from ‘Neutral’ to ‘Accumulate’ with target price of Rs 830.”

According to KR Choksey, HUL will continue to grow at 8 per cent in 2016-17E and 10 per cent in 2017-18E backed by investment in brands with cost efficiency and innovation of new products and improved operating margins. The near term outlook is largely dependent on demand from both rural and urban markets. We are expecting margins to remain around 18.1 per cent for FY17E and 17.7 per cent in FY18E. The brokerage house has ‘Accumulate’ recommendation on the stock with a target price of Rs 951.

On Tuesday, HUL shares were trading over 2 per cent higher at Rs 864.20 (at 12.55 pm).

However, Religare Institutional Research has ‘Sell’ rating on HUL shares. The brokerage house said, “We like HUL’s capital efficient model, we find valuations expensive at 40x FY17E and 34x FY18E EPS. Maintain SELL with target price of Rs 800.”

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