HUL share price jumps after Q3 results even as Sensex falls; brokerages bullish, check target prices

Hindustan Unilever share price soared on Friday amid weak markets, as brokerages kept favourable ratings on the stock after the company’s fiscal third quarter earnings met street expectations.

HUL share
HUL stock has rallied 1.46% in the last one month, but is down 2.60% for the last one year (file Photo Reuters)

Hindustan Unilever share price soared on Friday amid weak markets, as brokerages kept favourable ratings on the stock after the company’s fiscal third quarter earnings met street expectations. HUL stock was trading up Rs 33.65, or 1.44%, at Rs 2,294.25. Benchmark BSE Sensex fell more than 500 points, while NSE Nifty 50 dived more than 200 points to a low of 17,525 points in the morning trade. Earlier Thursday, Hindustan Unilever reported that third quarter net profit grew 17% on-year to Rs 2,243 crore, as the company gained market share in rural and urban markets across categories and price segments.

HUL stock has rallied 1.46% in the last one month, but is down 2.60% for the last one year. Going forward, the share price is expected to rise on the back of digital initiatives, strengthened product innovation and category development. According to ICICI Securities, industry leaders such as HUL are expected to deliver on key markers like steady premiumisation and category development, enhanced digital capabilities including e-commerce salience, D2C brands and improved reach.

Kotak Securities: BUY
Fair Value: Rs 2,800

HUL reported volume, revenue, EBITDA growth on brokerage’s expected lines. Even as the FMCG company’s near-term outlook is weak (incremental inflationary pressure + weak rural demand), Kotak Securities expects HUL’s operating performance to improve over FY2023E led by revival in BPC and nutrition portfolio growth as company’s initiatives yield results and operating environment normalizes post Covid. “We bake in the impact of incremental RM inflation (crude and palm oil are up 10-15% in Jan 2022) on demand and profitability, and trim FY2022-24E earnings by 1-3%” it said. The brokerage revised DCF-based Fair Value of the share to Rs 2,800 (Rs 2,950), implying 54X FY2024E earnings.” It has a Buy call on the HUL stock.

ICICI Securities: ADD
Target price: Rs 2,500

The brokerage firm cut its earnings estimates for HUL by 2% for FY22-23E; modelling revenue, EBITDA, PAT (CAGR) of 12 per cent, 14 per cent and 14 per cent respectively over FY2021-24E. “The task (ahead) is a tough one – eye on mid-to-long-term while navigating multiple (near-term) challenges. Firstly, supply-side inflation (of such scale) amidst (demand) slowdown is a tough situation to be in – any price hikes (RM inflation-led) will have a visible impact on demand,” said ICICI securities in its note. It maintained ADD rating with DCF-based revised target price of Rs 2,500 from earlier target price of Rs 2,600. Key downside risks are delayed recovery in demand, sustained raw material inflation and irrational competition.

Yes Securities: ADD
Target price: Rs 2,587

According to the brokerage firm, HUL delivered a resilient performance both on revenue and margins front despite the headwinds to rural demand and persistent material cost inflation. While volume growth looks soft at 2%, it was well ahead of industry growth which saw a decline, margin improvement despite the gross margin pressure was commendable. Key positives were the decent recovery in discretionary categories, strong double-digit growth in fabric wash, hair care and skin care. “We think this an appropriate time to upgrade our rating on the stock from Reduce to ADD as we believe the valuations have become favorable post recent correction and the company is well placed to tackle this transient inflation-led volume weakness period with strong margin levers and continued innovation and premiumization,” said Yes Securities. The target price for the stock is Rs 2,587 per share.

JM Financial: HOLD
Target price: Rs 2,635

JM Financial Services has upgraded HUL stock rating to BUY after having stayed on the side-line for quite some years now. The stock is down around 4% over the last one year and up just 9-10% over a two-year period vs Nifty’s over 21% and over 45% over the past one and two years, it said. According to the brokerage firm, HUL’s December quarter report was not too bad after all. Moreover, the headwinds are all mostly known now. “We believe HUL can continue delivering steady financials in turbulent times, akin to what it did in 3QFY22, even as impending triggers like demand-improvement, commodity costs reversal to mean, GSK synergies take their time to play out,” it said.

Motilal Oswal: BUY
Target price: Rs 2,750

According to Motilal Oswal, HUL’s operating margin base is favorable for the next three quarters. Continued market share gain in 75% of its portfolio is also encouraging. According the brokerage firm, the high margin discretionary portfolio will return to normal, and potential increase in government allocations towards the rural sector in the upcoming Union Budget could provide a much needed fillip to demand. “We maintain our BUY rating as we see earnings returning to the 15-17% CAGR witnessed in the pre-COVID period,” it said.

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