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Brokerages cut HUL’s EPS estimates as Q2 earnings below expectations

Credit Suisse lowers FY22-FY24 estimates by 3-4 percent, saying there could be downside risks to near-term volume growth. While HDFC Securities retains ‘reduce’ rating, Goldman Sachs has a ‘neutral’ call on the stock

October 20, 2021 / 11:11 AM IST
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Hindustan Unilever (HUL) share price is in focus after the company’s second-quarter results. Though the company reported a rise in profit, the numbers were below analysts’ expectations and some brokerages have lowered their EPS estimates.

On October 19, the FMCG major reported an 8.9 percent year-on-year (YoY) growth in standalone profit at Rs 2,187 crore for the quarter that ended in September 2021 on broad-based growth.

Price hikes supported operating profit margin but rising input prices limited growth. Revenue from operations grew 11.2 percent to Rs 12,724 crore in Q2FY22 from the year-ago period, with an 11 percent domestic consumer growth.

“The performance was broad-based, with all three divisions growing competitively. Business fundamentals remained strong with more than three-fourths of the business gaining market share and penetration," the company said in its BSE filing.

The company's board has declared an interim dividend of Rs 15 a share for the year ending March 2022.


How brokerages view the results

Despite HUL reporting a rise in profit, the Q2 numbers were below analysts' estimates. The firm's underlying volume growth in Q2 stood at 4 percent, below estimates. JM Financial Institutional Securities Ltd and Kotak Institutional Equities pegged volume growth at 8 percent and 5 percent, respectively.

At 1009 hours on October 20, the stock was trading at Rs 2,544.75, down Rs 1.70, or 0.07 percent. It has touched an intraday high of Rs 2,584.25 and an intraday low of Rs 2,530.

The scrip was trading with volumes of 795,769 shares, compared to its five-day average of 90,228 shares, an increase of 781.95 percent.

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According to a report by HDFC Securities, HUL’s headline numbers were broadly in line with expectations. However, weak internals and cautious outlook on demand and margins are raising questions about the near-term performance.

Revenue grew at 11 percent YoY while underlying volume growth (UVG), at 4 percent, was below estimates. UVG, on a two-year CAGR, was weak at 2.5 percent but improved sequentially (-0.4 percent in Q1FY22) after the second wave of COVID impacted Q1FY22.

“Gross margin pressure continued in Q2FY22 with a 142bps YoY contraction due to elevated commodity costs (crude, CPO, tea, and plastic) and higher freight cost. EBITDA growth was at 9 percent. We expect margin to remain under pressure in the near term, owing to sustained inflation and calibrated price hikes. We cut our EPS estimates for FY22/FY23/FY24 by about 2 percent. We value HUL at 55x P/E on Sep 2023E EPS to derive a target of Rs 2,482 and maintain reduce call," the brokerage firm said.

Global brokerage firm Credit Suisse has maintained its outperform call on the stock but has cut target price to Rs 2,800 from Rs 2,900 per share. It is of the view that weak volumes and rural slowdown in Nielsen Data cast a shadow, according to a CNBC-TV18 report.

The research firm has lowered FY22-FY24 estimates by 3-4 percent, adding that there could be downside risks to near-term volume growth.

Goldman Sachs has a neutral call on the stock with a target of Rs 2,167 per share. “Earnings were in line but flag risks to rural demand and inflationary pressure. We expect 4 percent volume and 10 percent revenue growth in Q3FY22. We lower our FY22-24 EPS estimates by less than 1 percent.”

Disclaimer: The views and investment tips by experts on are their own, and not that of the website or its management. advises users to check with certified experts before making any investment decisions.
Sandip Das
first published: Oct 20, 2021 11:11 am

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