Annual report review: CLSA rates underperform on HUL, stock down

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26 Aug, 2025 12:21

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Moneycontrol Bureau CLSA has retained underperform rating on HUL as it finds valuations to be expensive but raised target price to Rs 885 from Rs  800 per share. After single-digit earnings per share (EPS) growth for the past few years partly due to fiscal headwinds, CLSA expects HUL to post 15 percent earnings CAGR over FY16-19. The brokerage firm is impressed by HUL's performance as the FMCG company generated 110 percent return on average equity (ROAE) and maintained 100 percent dividend payout in FY16. Analysing HUL's annual report, CLSA says that despite a 49 percent annual rise in capex, free cash flow (FCF) increased 16 percent. As per its estimates, HUL may see over 20 percent CAGR in FCF in FY16-19. "Interestingly, HUL is already in the midst of seeking approvals to transfer Rs 2200 crore from the general reserve to the profit and loss account – this would be utilised to return money to shareholders, although the form this would take is still unknown," it says in a report. Its margins in January-March quarter beat street estimates but volume growth was dismal. Post Q4 results, most analysts were bullish on the stock but concerns over rural demand and monsoon still persist.HUL posted net profit at Rs 1090 crore in January-March quarter, up 7 percent from Rs 1018 crore in corresponding quarter last fiscal. Total revenue in Q4 rose 3.5 percent at Rs 7945 crore against Rs 7675 crore in year-ago period. However, volume growth of 4 percent (YoY) in the quarter was disapointing. In Q4, gross margins rose 240 basis points (bps) at 52.6 percent versus 50.2 percent YoY. Raw material costs slipped 2.9 percent at Rs 976 crore but advertising spends increased 6.3 percent at Rs 1090 crore.Shares of HUL fell 2 percent intraday on Thursday. At 11:27 hrs Hindustan Unilever was quoting at Rs 879.75, down Rs 17.60, or 1.96 percent.Posted by Nasrin SultanaFollow @NasrinzStory