Shares of Hindustan Unilever (HUL) have jumped 3 per cent in one month, outperforming benchmark NSE Nifty 50, which has advanced half a per cent. HUL share price is expected to rally 22 per cent going forward given that company is the best prepared among peers on the technology as well as the e-commerce strategy front to deal with potentially significant disruptions ahead, according to analysts at Motilal Oswal Financial Services. The brokerage maintains ‘buy’ rating on the stock with a target price of Rs 2,700 per share, implying 22 per cent upside. HUL shares were quoting at Rs 2,198 apiece, down 0.5 per cent on the National Stock Exchange intraday.
Positive momentum in earnings
Analysts in the Motilal Oswal report stated that HUL continues to take steps for future growth and has been able to do so ahead of its peers. “It continues to display the dexterity shown over the last decade, despite its larger size, even as it continues to grow versus its peers,” they said. The company continues to strengthen the key drivers of its success in India over the last decade, including pioneering the use of technology to generate data and facilitate decision making; focusing on decentralization and localized strategies based on its WiMI framework; recognizing trends and investing in them early on; funneling cost savings back into the business; and its strong execution ability, which has led to a positive momentum in earnings.
Gaining market share
HUL now has 16 brands with over Rs 10b in annual sales as opposed to 14 brands in FY21. In FY22, its gain in market share was the highest in more than a decade. The company also continues to evolve as a digitally capable enterprise, catering to emerging consumer needs. The core business continues to use analytics and machine learning to improve efficiency. It is leveraging economies of scale, while remaining nimble. Its B2B app – Shikhar – is now present in 8,00,000 outlets. The app enables zero-touch online ordering and has helped solve two of the biggest challenges that retailers face – capital (tie-up with SBIN for financing) and space (quicker inventory turnover with a faster fulfillment).
Once ongoing high material cost environment abates, HUL could revert to mid-teens earnings growth
According to the report, HUL’s pre-COVID earnings had been extremely strong. The FMCG major reported around 18% EPS CAGR in the four-years ending FY20, before steeper commodity cost inflation (v/s peers) and the over-indexed discretionary portfolio adversely impacted its earnings in FY21 and FY22. The company’s pre-COVID earnings growth was particularly impressive, given the weak mid-single-digit growth posted by its (much smaller) Staples peers over the same period. “Once the ongoing high material cost environment abates, we believe HUVR could revert to mid-teens earnings growth,” it said.
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