HUL after Q2: Street expects 15 to 20 percent upside on this stock

Source :Sify
Author :Finance Desk
Last Updated: Wed, Oct 21st, 2020, 17:40:55hrs
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HUL Hindustan Unilever

Mumbai: Investment in stocks of FMCG and Consumer Brand Hindustan Unilever Ltd is likely to result in at least a 10 percent benefit considering the latest analyst calls.

HUL posted its results for the second quarter of 2020-21 on Tuesday and also announced a dividend.  

Here are top five indicators from the latest financial performance of HUL:

1. 8.58 percent growth in consolidated net profit for the July-September quarter at Rs 1,974 crore. It reported consolidated net profit of Rs 1,818 crore during the same period of the last financial year (2019-20).

2. Its revenue from sale of products stood at Rs 11,510 crore during the period under review, against Rs 9,931 crore earned during the second quarter of the last fiscal.

3. Total sales grew by 16 percent but underlying domestic consumer business sales grew by 3 percent.

4. Company announced 70 percent of business is gaining penetration.

5. Total sales grew by 16 percent. Underlying domestic consumer business sales grew by 3 percent.

HUL announced a dividend of Rs 14 per equity share and concluded its note stating that "worst is behind us and we are cautiously optimistic on demand recovery."

After the second quarter result announcement, latest analysis from Motilal Oswal, ICICI Securities and Yes Securities have revised their target price on stocks of HUL. The time period is for 12 months.

Yes Securities: Target Price of nearly Rs 2,500

In a note, Himanshu Nayyar, Lead Analyst writes, "HUL though its sharp execution, operational agility and brand portfolio seems well prepared to

benefit from the impending recovery much ahead of competition. We would therefore expect another phase of outperformance to resume post the recent consolidation and expect the stock to re‐rate towards 50x FY23 earnings from current levels of 44x, implying a fair value of nearly Rs 2,500."

ICICI Securities: Buy: Target Price of Rs 2,500

Analysts in a note, said, "We believe H2FY21E would witness strong growth across segments with complete demand recovery in discretionary portfolio as well. The company has been able to leverage strong brands in hygiene (Lifebuoy, Domex, Vim, Surf Excel) space to drive growth. We believe the company would continue to witness strong double digit growth in the health, hygiene & nutrition space. Further, margins improvement with consolidation of nutrition brands would drive earnings. We upgrade our recommendation from HOLD to BUY with a revised target price of Rs  2500/share."

Some of the comments made by analysts on the performance are:

1. Net sales increased 16.5 percent (to Rs 11,276 crore) mainly due to consolidation of acquired brands i.e. Horlicks, boost & Vwash. On a like to like basis, the growth has been 3% on the back of 1% volume growth

2. Raw material expense at Rs 5,375 crores: "With tea prices up 70% & palm oil prices up 40%, the company has seen 145 bps gross margins contraction." Analysts highlighted that marketing spends although was inching up it was still 5% low on a YoY basis -- "Marketing spends declined 5% with the company incurring benefit of lower ad rates & reduced promotional intensity."

In its assessment, ICICI analysts have shared a table of prominent stocks from FMCG sector.

Motilal Oswal: Buy: Target Price of Rs 2,620 (up by 21%)

Analysts observed:

1. Net sales grew 16.1% YoY to Rs 114.4 bn (est. Rs 109.2b). EBITDA grew 17.4% YoY to Rs 28.7b (est. Rs 27.3b) and PBT grew 16.4% YoY to Rs 27.4b

(est. Rs 26.3b). PAT (bei) was up 11.1% YoY to Rs 20.4b (est. Rs 19.3b). Domestic consumer business sales grew 3% YoY with underlying volume

growth of 1% YoY (excl. GSKCH and v/s our est. of +3%).

2. Structural and near-term investment case for HUVR remains strong.

3. 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).

4. We remain positive on HUVR 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 TP of INR2,620, implying a 21% upside.

The stock as of Wednesday closed at 0.40 percent in the red at Rs 2163.40 per share. Approximately 95,000 shares were exchanged on the counters. The stock's 52 week high and low stands at Rs 2,614 (8 Apr) and 1,756 (19 Mar) according to data on the Bombay Stock Exchange.

Image: A file photo of HUL's office at Mumbai. Indranil Mukherjee for AFP
 

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