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What should investors do with HUL post Q2 results? buy, sell or hold?

Sharekhan maintained buy recommendation on the stock with an unchanged price target of Rs 2,550.
Oct 21, 2020 / 09:52 AM IST

The FMCG major Hindustan Unilever (HUL) share price rose in early trade on October 21 after the company came out with its September quarter earnings.

It has reported profit of Rs 2,009 crore in the quarter ended September 2020, rising 8.7 percent compared to Rs 1,848 crore in same period last year.

Revenue from operations increased 16.1 percent to Rs 11,442 crore in Q2FY21 compared to Rs 9,852 crore in corresponding period last fiscal.

Company's earnings before interest, tax, depreciation and amortisation (EBITDA) for the quarter came in at Rs 2,869 crore grew by 17 percent YoY and margin improved by 30 bps compared to September quarter 2019.

Also Read - HUL Q2 profit rises 8.7% to Rs 2,009 crore, operating earnings beat estimates

Here are the brokerages view on the stock post Q2 earnings:

Motilal Oswal

The company’s earnings growth has gained further momentum in recent years (17% EPS CAGR in the past three years v/s ~12% CAGR over 10 years). This is particularly impressive given the weak mid-single-digit earnings growth posted by (much smaller) peers in recent years. We remain positive on company from a medium-term perspective encouraged by: (a) robust earnings growth potential beyond the near term owing to its portfolio and execution strengths, and (b) significant synergies in FY22E as a result of GSKCH.

These factors suggest premium multiples are likely to sustain. Valuing the company at 55x Sep’22E merged EPS, we arrive at a target price of Rs 2,620, implying a 21% upside.

Prabhudas Lilladher

We remain structurally positive on HUL given its strategy around emerging categories, increasing distribution, WIMI, digital market and strength in supply chain. We estimate HUL to post EBIDTA CAGR of 15.9% over FY20-23 led by 200bps margin expansion. We however cut EPS estimates by 2-4% as we increase dividend payout to 95% and assume lower interest on surplus funds.

We shift our target price base from PE to DCF and assign a 15-month target price of Rs 2502 (Rs 2254 based on 46xFY23 earlier). Upgrade to Buy.

Sharekhan

We have broadly maintained our earnings estimates for FY2021/22/23. With a strong recovery in rural demand, management was cautiously optimistic on improvement in the overall demand environment in the coming quarters.

Though higher input prices would put margins under pressure in the near term, the management has maintained outlook of sustenance of modest margin expansion in the coming years. The stock is currently trading at 48x/42x its FY2022/23E EPS. We maintain our buy recommendation on the stock with an unchanged price target of Rs 2,550.

Dolat Capital

We have maintained our FY21E and FY22E EPS to Rs 34.3 and Rs 40.0 and introduced FY23E EPS estimates at Rs 46.4. Valuing the stock at 50x FY23E EPS we have arrived at a target price of Rs 2,320. We maintain reduce. Considering recent run in stock price, there is limited room for further up-move. However, fundamentally, we see high growth prospects for HUL going ahead. Buy on dips.

CLSA

The company has reported in-line Q2 financials with 16% topline growth and share gains a key near-term priority.

The company is prioritising volume over margin in the near term and consider this an apt strategy to expand penetration across categories. It should be able to uptrade consumers & recoup any margin losses.

CLSA has cut FY21-23 earnings estimates by 4-5% and continue to see company as a structural play in Indian FMCG. It has maintained buy call and raised target to Rs 2,600 from Rs 2,525, reported CNBC-TV18.

Jefferies

Research house has maintained buy call with a target at Rs 2,650. The company managed to beat forecasts on earnings, while witnessed a sequential pick-up across categories.

GM pressure was visible due to mix & input price inflation. The key concern is a slow trade offtake on winter portfolio pre-season.

The outlook is cautiously optimistic as worst is behind, while rural looks resilient while urban demand looks uncertain, reported CNBC-TV18.

At 09:19 hrs Hindustan Unilever was quoting at Rs 2,180.45, up Rs 7.35, or 0.34 percent on the BSE.
Moneycontrol News
first published: Oct 21, 2020 09:52 am
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