Brokerage houses have downgraded Hindustan Unilever (HUL) following a poor quarterly showing for the three months ended December 31, 2012. HUL reported a 16% rise in net profit to Rs 871 crore, while net sales were up 12% to Rs 6,655 crore. Volume growth - a key metric for most consumer companies - was down to five% from almost nine to ten% a year ago. This was the lowest in three years for the company.
Brokerages such as CLSA downgraded HUL to sell from outperform with a target price of Rs 430 from Rs 585. J P Morgan and UBS maintained a neutral stance on the stock with a target price of Rs 550 from Rs 465 and Rs 620 respectively earlier. Bank of America and Jefferies both had an underperform tag to the stock following its weak financial performance yesterday with a target price of Rs 441 and Rs 434 from Rs 477 and Rs 473 earlier. Goldman Sachs and Citi had a sell tag on the stock, while Deutsche Bank maintained hold and Nomura downgraded the stock to reduce from neutral.
HUL was down nearly five% in morning trade today to Rs 458 on the Bombay Stock Exchange and is likely to remain weak, analysts said. The company also signed a new royalty agreement, which would see its payout increase to 3.15% of sales from 1.4% now by March 2018. The agreement is effective next month, with the royalty shooting up by 0.5% between February 2013 and March 2014. It will then go up by 0.3 to 0.7% per annum for the next four years. HUL's chief financial officer R Sridhar said the increase in royalty was a fair price to Unilever for greater access to its brands and technology. But analysts are worried it will hit margins.