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The bourses have been bullish on the Hindustan Unilever scrip since May 5, and more so after its results were announced on Monday. The share price rallied nearly 11 per cent since May 5 to close at Rs 298.82 on Wednesday.
Most brokerages have recommended a buy on this stock. The company has stepped up its product innovation in the foods and personal care space with new launches under the Kissan and Knorr brands, said a Religare institutional research report.
Aggressive beefing up
“The company is getting aggressive in beefing up its distribution network by adding another five lakh outlets and substantially improving rural penetration,” said an FMCG analyst at a brokerage.
Standard Chartered equity research in a report to clients has maintained its outperformer rating on the stock on the back of strong volume growth without sacrificing margins.
“We see the momentum in volume and sales growth continuing across segments. Recent softening in commodities and calibrated price increases will lead to margin improvement in soaps and detergents.
Input costs, a dampener
“Strong growth in the high-margin personal product and upgrading across categories will aid overall margin improvement,” said Standard Chartered analysts, Mr Sanjay Singh and Mr Pratik Biyan.
Though higher input costs have been a dampener, the company has managed to keep employee costs and advertising spends under check, said experts. India remains the hub Unilever's global business strategy they added.
Elara Capital, after attending the HUL's investor meet, said: “We returned today from HUL's investor meet vindicated and reassured about our bull case and see an immediate need to raise our target. The outlook and aggression was reminiscent of the ‘old' HUL and the optimism of the management was palpable.”
Negative outlooks
However, not all convinced with Hindustan Unilever's financial performance.
Prabhudal Lilladher, which maintained sell rating on HUL, said: “While volumes remained strong despite cut down in promotional spends, rising competitive intensity in an inflationary input cost environment caps the upside to margins.”
Anand Rathi also recommended a sell on HUL with a price target of Rs 204. “HUL has entered various competitive segments such as prickly heat powder under the Lifebuoy brand, and health-food drinks and juices under the Kissan brand, under which it has also entered spreads. With other segments facing keener competition, we expect HUL's entry into more competitive segments to further impact margin,” said an Anand Rathi report.
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