HUL share price up 4% after GSK, Horlicks sell 5.7% stake but down 16% in one month, should you buy?

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Published: May 8, 2020 2:34:40 PM

Hindustan Unilever share price jumped 4% on Friday to trade at Rs 2,070 per share on the NSE Nifty-50 after a bulk deal that saw French multinational investment bank and financial services company, Societe Generale buy 1,29,00,000 shares.

Hindustan Unilever (HUL) share price jumped 4% on Friday to trade at Rs 2,070 per share on the NSE Nifty-50 after a bulk deal that saw French multinational investment bank and financial services company, Societe Generale buy 1,29,00,000 shares at Rs 1,902 per share. Societe Generale was one of the buyers emerging to buy HUL shares as GlaxoSmithKline and Horlicks looked to sell 5.7% equity stake in HUL, valued at Rs 26,000 crore. Under the recent turmoil, some analysts expect HUL to gain market share across segments while others think the upside is limited after the recent run-up.

HUL is expected to benefit from the rural demand recovery, according to analysts at Edelweiss Securities. “Although the lockdown would affect near-term volumes, we expect volumes and earnings to bounce back once the situation normalises,” Edelweiss said in a research note. The brokerage firm has a buy rating on the stock with a target price of Rs 2,550. EPS growth is pegged to be at 8.4% in the current fiscal before making a recovery in FY22 to growth at 11.9%. “HUL is responding well with 60x production of sanitisers and innovations such as Lifebuoy germ kill spray, Domex germ removal wipes, Domex disinfectant spray. On the cost front, we expect distribution costs to rise in Q1FY21; however, lower ad rates, brutal cost optimisation and synergies from the GSK acquisition would more than compensate for that, keeping it on the EBITDA margin expansion trajectory,” the report said. 

The personal care, home care, and food & refreshment segments all recorded a fall in revenues on-year basis. “The near term outlook is uncertain as the full impact of the lockdown will be felt in 1QFY21,” said research and brokerage firm Bonanza Portfolio is a result update on HUL. “Considering the balance sheet strength, diverse product portfolio not only in terms of category but also brands spread well across the value – premium continuum and execution ability, we believe correction in the stock price should provide a good entry opportunity for investors. Therefore we value HUL at 56x FY22E EPS of 39.1, with a HOLD rating,” it added. A target price of Rs 2,200 has been set by Bonanza. 

HUL’s revenues declined by 9%, while volumes dipped by 7%, both below estimates. The impact on the beauty and personal care segment was sharper as a result of weak demand pre-coronavirus along with the lockdown impact. While HUL remains a strong business model it might not be immune to the slowdown, said HDFC Securities. The brokerage firm thinks the upside in the medium term is restricted owing to the recent run-up the stock witnessed amidst flight to safety. 

“The rally started from March lows of 1757 to April 2020 high of 2614 has retracted by more than 80%. It is now expected to see buying support between the 1900-2100 range. Once the rage gets crossed one can expect the longer-term bullish trend to resume,” said Vishal Wagh, Research Head, Bonanza Portfolio. 

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