HUL Q4 results miss estimates: Should investors buy, sell or hold the stock?

Shares of HUL gave gained over 14 percent so far in 2020, and could see some more upside even though March quarter results were below expectations as it will be a key beneficiary of the rural demand recovery and one of the least impacted companies from COVID-19 led disruptions, suggest experts.

Most brokerage firms forecast fell in earnings as well as volume disruptions but they maintained a 'buy' rating on the stock. After a 14 percent rally, most experts feel that valuations still remain high but it is a good 'buy on dips' stock in the long term.

The company on April 30 reported a profit of Rs 1,519 crore in the fourth quarter, registering a 1.2 percent decline YoY due to the lockdown in the second half of March.

The standalone profit in the same period last year was Rs 1,538 crore.

Revenue for the March quarter dropped 9.4 percent year-on-year to Rs 9,011 crore due to a decline in volumes.

Also read: HUL Q4 misses estimates, profit dips 1% to Rs 1,519 crore, volume shrinks 7%

HUL reported a 7 percent decline in underlying volume growth in the quarter against a 7 percent growth in Q4 FY19 and 5 percent growth in Q3 FY20.

"The spread of COVID-19 impacted the business from mid-March, which culminated into scaling down of operations post the national lockdown. Domestic consumer growth declined by 9 percent with a decline of 7 percent in underlying volume growth," HUL said in its BSE filing.

"HUL’s quarterly show missed Street estimates on an overall front and the underlying volumes contracted 7 percent as demand fell due to the COVID-19 lockdown, the highest decline since the demonetisation quarter," Umesh Mehta, Head of Research, Samco Securities told Moneycontrol.

“However, HUL’s resilient business model, menial debt and healthy balance sheet would help the company steer through these tough times. Investors are advised to hold this stock from a long-term perspective,” he said.

We have collated a list of recommendations from different experts and brokerage house on HUL post-March quarter results:

Brokerage: Edelweiss Securities maintained ‘buy’ rating

The 9.4 percent YoY dip in Hindustan Unilever’s Q4 FY20 net sales came in line, while the 11%/2% YoY EBITDA and adjusted PAT fall, respectively, belied expectations.

Volumes dipped 7 percent on a YoY basis on a base of 7 percent, clearly reflecting the impact of lockdown and deceleration in discretionary spending (BPC category declined 13.5 percent).

Without COVID-19 too, HUL would have clocked an approximately 3 percent YoY revenue growth, lower than previous quarters owing to accentuating rural slowdown as well as the sluggish macroeconomic environment.

Going ahead we remain confident of margin expansion trajectory owing to cost savings programs and building synergies from GSK acquisition. Maintain a buy rating with a target price of Rs 2,550.

Analyst: Naveen Trivedi, Institutional Research Analyst, HDFC Securities – retained 'reduce' call

HUL posted weak performance across all fronts in Q4 FY20 despite our estimates being lower than consensus. Revenue and volumes were impacted by weak BPC market growth and lockdown led trade de-stocking in March.

Lockdown led supply chain disturbance will be resolved in the coming months. However, underlying demand which was already reeling in FY20 will be further impacted in FY21. Consumer trends are expected to change sharply for many categories in FY21.

Discretionary, OOH and rural consumption will remain tepid. In our recent thematic report, we have already cut down estimates for our coverage universe.

However, we expect there can be more downside risk to our estimates for all. We cut our EPS estimates for HUL by 7-8 for FY21 and FY22. We value HUL at 47x on March-22E EPS, our target price is placed at Rs 1,969, down from earlier Rs 2,113.

Brokerage: ICICI Securities maintained 'add' rating

In our view, optics mattered the most this time. We reckon HUL is preparing for a long drawn down trading cycle, channel and trade disruptions and limited P&L ammunition to fight these battles.

All said, we still believe, HUL is an outperformer within consumer staples.
Analyst: Ashish Chaturmohta, Head of Technical and Derivatives, Sanctum Wealth Management

HUL results were disappointing as the volume de-growth of 7 percent was not seen even during the demonetisation period. Personal care and ice cream segments witnessed a soft demand leading to the weak performance of the company.

In the short run, the stock is expected to underperform given the expensive valuations and poor quarterly performance.

However, in the medium term, HUL should fare well as it will be a key beneficiary of the rural demand recovery and one of the least impacted companies from COVID-19 led disruptions.

Brokerage: Centrum retained 'add' rating

Centrum retained add rating on HUL post-March quarter results with a target price of Rs 2,219. "We believe, HUL’s key categories are well penetrated with distribution led growth and premiumisation in place for the near term,” it said in a report.

The management expects a gradual recovery in the economy building on government support to the lower-middle-income groups which will drive consumption.

Moreover, bumper rabi crops should result in lifting rural income driving demand for its key categories, in our view. Building on opportunities, management informed about expediting new product launches backed by innovation, and superior execution.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.