What do analysts make of HUL's Q3 results?

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What do analysts make of HUL's Q3 results?

Hindustan Unilever shares slipped further 2% on Tuesday, having closed down over 3% on Monday, despite strong earnings growth in the third quarter as investors were concerned whether it would be able to sustain its volume growth going ahead amid increasing competition and price hikes.

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Moneycontrol Bureau

Hindustan Unilever shares slipped further 2% on Tuesday, having closed down over 3% on Monday, despite strong earnings growth in the third quarter as investors were concerned whether it would be able to sustain its volume growth going ahead amid increasing competition and price hikes.

Near 300 basis points drop in operating margins in personal products and lower 14% growth in the segment, which accounts for near half of HUL's sales, and a sharp drop in overall advertising and promotional spends for the third consecutive quarter also left investors worried, Sharekhan analyst Kaustubh Pawaskar told moneycontrol.com.

The India's largest FMCG company had on Tuesday reported 18% year-on-year rise in third quarter net profit at Rs 753 crore, and a 16.4% increase in net sales to Rs 5,853 crore. Volumes grew 9% in the quarter.

Most analysts remain bullish on long-term growth, but some including Pawaskar warn of expensive valuations and limited upside in stock price

Here are some analysts' comments on HUL's Q3 numbers and outlook ahead:

Edelweiss Securities: Key positives were soaps & detergents growth. The company's EBITDA margin expanded 220 bps YoY primarily due to 287 bps reduction in ad spends coupled with price hikes. Key negative is poor quality of growth as margins in food, personal products and beverages shrunk while other businesses posted negative growth. Rating: Buy. Target: Rs 415.

Kotak Institutional Equities: While HUL's EBITDA margin beat expectations handsomely, the quality of beat was likely lower due to 2% EBIT growth and relatively lower 14% sales growth in personal products (underperformance in oral care). We remain believers in HUL's medium-term prospects, however, expensive valuations and near-term challenges prompt us to reiterate Reduce rating. Target: Rs 420.

Royal Bank of Scotland: Overall, we see the earnings drivers intact, with volume growth remaining close to double digit. HUL's stock price correction post the results was due to weakness in the personal products business. We believe the medium to long term growth potential remains strong for HUL in personal products, and we would not get unduly concerned about one quarter's slightly weaker margins. Rating: Buy on declines.
 
Sharekhan: The sequential improvement in the gross margins was the highlight of quarter. The stock (however) is currently trading at 29 times its fiscal 2013 EPS (earnings per share) estimates, ahead of mean PE multiple of 26 times. Rating: Hold.

Standard Chartered: While sales growth was largely in line, the key positive surprise came in margins for soaps & detergents - at 13.5% it improved 110 bps sequentially and 570 bps year-on-year. (Overall) strong volume-led growth and improving margins should enable 20% EPS CAGR over fiscal 2012-14. Rating: Outperform. Target: Rs 457.

At 11:00 hrs, HUL shares were down 2% at Rs 379.35 on NSE. 

Nachiket Kelkar
nachiket.kelkar@network18online.com