Shares of Hindustan Unilever (HUL) climbed almost 2 percent on BSE in early trade on October 15, a day after the company reported a 21 percent year-on-year (YoY) jump in net profit at Rs 1,848 crore for the July-September quarter on the back of better volume growth.
Earnings before interest, tax, depreciation and amortisation (EBITDA) were at Rs 2,443 crore, up 21 percent (16 percent on comparable basis after adjusting for accounting impact of Ind AS 116).
Brokerages have mostly maintained their call on HUL, while some raised the target price. Most of them are also positive on the growth prospects of the FMCG major.
CLSA has maintained an outperform view on the stock, raising the target price to Rs 2,250 from Rs 2,135, saying HUL's Q2 results exceeded on all counts.
"Volume growth of 5 percent mirrors current weakness but is good in the context of the slowdown. We raise earnings per share (EPS) estimates by 1-2 percent on better margins. GSK merger could add at least 6 percent to EPS," CLSA said.
Macquarie, too, has an outperform view on the stock. The brokerage raised the target price of HUL to Rs 2,383 from Rs 2,041.
"Volume growth of 5 percent and EBITDA of 14 percent are some of the best operational numbers. The biggest surprise in the company's earnings in the last three years has been margin levers," Macquarie said.
The brokerage says the present ecosystem is suitable for HUL to gain market share. Macquarie has raised FY19-22 EPS by 4-6 percent on lower tax.
JP Morgan has a neutral, with a target price of Rs 2,120. It says the company showed in-line operating performance in a tough market environment.
"Premium multiples could hold up, given better performance against most peers," JP Morgan said.
Foreign brokerage Jefferies has a hold recommendation on HUL, with a target price of Rs 2,020. While the overall FMCG market has slowed down, led by rural segment, HUL has maintained steady growth, it says.
The brokerage has left the estimates unchanged, saying HUL continues to execute well in a tough macroeconomic environment.
"Margin delivery continued to surprise positively, driven by benign input costs and given limited scope for earning upgrades, we remain on the sidelines," Jefferies said.
On the other hand, UBS has a neutral rating on the stock, with a target price of Rs 2,150. It says the risk-reward is unattractive at present valuations.
“We expect EPS upgrades after Horlicks deal. Revenue growth outlook hinged on volume upside from segments that saw pricing action," said UBS.
Credit Suisse has maintained a neutral call, with a target price of Rs 2,180. The foreign brokerage says HUL displayed a decent volume growth in a weak macro situation.
"We lower our FY20-22 earnings estimates by 2-4 percent as soap business remains the area of concern," Credit Suisse said.
While management commentary on consumption environment is also a concern, the corporate tax cut could lead to more supply chain savings, Credit Suisse added.
Domestic brokerage firm Motilal Oswal Financial Services has a buy recommendation on the stock, with a target price of Rs 2,265.
The brokerage says HUL's revenue was in line, while the margin surprised yet again.
"Once we incorporate the GSKCH merger (final approvals awaited), there could be an 8-9 percent addition to EPS in FY21, which means that the stock is trading at about 45.3 times FY21 against 49.4 times as it appears currently. On a target multiple of 50 times September 21E EPS, we derive a target price of Rs 2,265," Motilal Oswal said.
Given best-of-breed earnings visibility and by far highest return ratios, the premium valuations of HUL are justified, it says.
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