Analysts give thumbs down to Hindustan Unilever results

After falling over three per cent on Tuesday, the stock of Hindustan Unilever on Wednesday closed with a small gain of₹566.90 on the BSE. The stock has been under pressure after the company announced a "weak" financial performance. In today’s trade the stock hit a low of ₹556.25, but recovered as investors preferred defensive stocks.

HUL reported a 11 per cent (y-o-y) increase in net profit at ₹872 crore for the quarter ended March, on improved margins and 9 per cent spike in sales led by beverages and premium segments. The results were announced on Monday after market hours.

Net sales climbed 8.9 per cent to ₹6,935.82 crore in the fourth quarter, from ₹6,367.14 crore a year ago.

For fiscal 2013-14, HUL’s net profit rose to ₹3,955 crore from ₹3,839 crore, while total sales jumped to ₹28,539 crore, up 8.7 per cent from ₹26,317 crore.

The company’s sales growth stayed muted for the eighth straight quarter, hurt by a sluggish economy. India’s largest consumer goods maker said it did not expect a demand recovery in the near-term.

According to Sagarika Mukherjee of SBICap Securities, “overall, the results were disappointing due to growth in personal products segment falling below 10 per cent in FY14 owing to widespread slowdown.

Tejash Shah, Senior Research Analyst of Spark Capital, said, volume off-takes remained tepid across key product categories.

“Rising operational costs, higher royalty and tax rates would keep earnings growth under check,” said Emkay Global Financial Services, which maintains a sell rating on Hindustan Unilever.

India Infoline said: “We believe requirement of higher adspend on account of severe competition in core categories, currency depreciation and firm input prices could put pressure on operating margins. In a slowing macro-economic environment it will be difficult for HUL to take price hikes (as demand remains weak).”

It, however, assigned market performer rating on Hindustan Unilever and revised its price targe higher to ₹601 from₹597.

Similalry, ICICI Securities said, though there are near-term volume growth concerns for HUL, “we believe the company’s strong brands across segments where it is present would revive the company’s revenue and volume growth with a recovery in the consumer demand.”