Hindustan Unilever’s execution, product superiority and digital investments are yielding better-than-industry growth and widening its lead against peers, brokerage and research house Nomura said on June 7.
The firm has set HUL's target price at Rs 3,025, betting on a 15 percent earnings per share CAGR over FY23-25F.
"Home-care category growth is likely to remain strong on the back of buoyant urban market demand; and, the price cuts/grammage increases in its laundry portfolio will likely aid in improving volumes in Q1 FY24," Nomura's analysts Mihir Shah and Anshuman Singh said.
They have pegged home-care segment's growth at 15 percent year-on-year YoY for Q1 FY24, and beauty and personal care vertical’s growth at 8 percent.
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However, the food and refreshments category is expected to have a tepid growth at 4 percent YoY. The ice-cream portfolio should benefit from seasonality, while the tea portfolio may face some challenges due to delayed market availability, they said.
HUL's gross margin recovery is expected to continue in Q1 FY24 as key raw material prices remain soft or range-bound. The full benefit of deflationary input costs will, however, be recognised over the next two quarters as the company carries certain high-cost finished goods inventory.
Nomura estimates a gross margin of 48.5 percent Q1 FY24. "Operating margin expansion will be limited as HUL continues to invest in advertising and brand building activities to counter increased competition from unorganized players," according to the Nomura report.
Rural demand and volume growth
A major pain point for FMCG companies has been sluggish rural demand. While urban markets continue to drive premiumisation, rural India is reeling under inflationary pressures.
"Urban markets will continue to grow faster. While rural market demand is witnessing a better trajectory, it is still not out of the woods and the pace of recovery is gradual. We note the full benefit of the harvest money is yet to be seen translating into product consumer demand," said Nomura.
HUL's volume growth was 6 percent in Q1 FY23, 4 percent in Q2, 5 percent in Q3 and 5 percent in Q4, driven by urban markets.
For the quarter ended March 31, 2023, HUL reported standalone net profit at Rs 2,552 crore, registering a growth of 9.66 percent from Rs 2,327 crore in the same quarter of the previous financial year. Total revenue came in at Rs 15,053 crore, rising 10.81 percent from Rs 13,584 crore in the year-ago quarter.
A 3 pm, the stock was quoting at Rs 2,718.45 on the NSE, higher by 1 percent from the previous close. The stock is 6 percent in 2023 so far.
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