HUL’s rally suffers rude shock as 3% volume growth disappoints

Shares of Hindustan Unilever fell more than 5% on Monday after the FMCG player reported lower volumes for the quarter-ended December.

Shares of Hindustan Unilever fell more than 5% on Monday after the FMCG player reported lower volumes for the quarter-ended December.

The Kolkata-based company posted a volume growth of 3% in December quarter against a 5% growth in the previous quarter. At R1,252 crore, the company’s bottom-line improved by 28.7% over the previous quarter. On a y-o-y basis, net profit improved by 17.9%. The top-line grew by 7.7% to R7,579.18 crore compared to the same quarter last year.

“Profit after tax before exceptional items, PAT, stood at R955 crore while net profit … was up 18%, despite higher tax rate, aided by the exceptional income arising from the sale/transfer of properties,” the company said in a press release.

However, the lackluster volume growth disappointed the Street, with the scrip ending 5.27% lower at R892.80 on the BSE.

Anticipating a gradual recovery in volume growth from FY16, brokerages have upgraded their rating on the stock in recent days.

JPMorgan has upgraded its rating from ‘neutral’ to ‘underweight’. “HUL has registered 4-6% volume growth over the past eight quarters, as demand trends were adversely affected by slowing macro,” the brokerage said in a note, adding that soft trends may continue over H2FY15 (affected to some extent by the delayed onset of winter).

Apart from the likely recovery in volume growth, Credit Suisse expects lower input costs and weakening competition to help HUL. “We upgrade earnings by approximately 4% to build in lower input costs in a structurally weaker competitive environment. We expect 21% earnings CAGR over FY15-17, as against 10% CAGR over the past two years.” The brokerage has upgraded its view to ‘outperform’ from ‘neutral’.

The stock ended CY14 with gains of 33%. In YTD, the scrip has gained 17.5%.

Analysts expect the stock to face near-term pressure. “We would expect that sales growth of the company shall pick up in the coming quarters, as lower inflation, improved sentiment help lift volume growth. The stock could see some near-term pressure, given sharp run-up in recent sessions and disappointing Q3FY15 results. However, our medium term view on the stock remains constructive,” Ritwik Rai, FMCG analyst at Kotak Securities said.

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