Brokerages remain hooked to HUL post Q4 numbers, eye up to 24% upside

Shares of Hindustan Unilever (HUL) slipped 3 per cent to Rs 2,331 on the BSE in Friday's session, a day after the fast-moving consumer goods (FMCG) maker reported its March quarter results.  

While the company's performance in the fourth quarter of the financial year 2020-21 (Q4FY21) was better than Street's estimates, analysts flagged Covid-19-led disruption, raw material inflation and higher-than-anticipated tax rates as near-term challenges. Brokerage JM Financial said it expects the stock to remain rangebound in the absence of any firm trigger. 

The company on Thursday reported Q4 standalone net profit at Rs 2,143 crore, up 41.07 per cent year-on-year (YoY). The revenue during the quarter under review jumped 34.63 per cent YoY to Rs 12,132 crore in comparison with Rs 9,011 crore in the same period last year. 

Following the results, most brokerages retained their bullish stance on the stock and advised either buying or holding it. They eye an upside of nearly 24 per cent from the current market price. 

The stock was trading at Rs 2,343.80 on the BSE, down 2.71 per cent at around 12.50 pm.

Here's what top brokerages said on HUL post its Q4 numbers: 

Jefferies | BUY | Target Price: Rs 2,750

In our base case, we forecast a c.14 per cent annual growth in revenues over FY20-23E with marginal 60 bps improvement in Ebitda margins driven by operating leverage gains and synergies from the GSK merger. While input inflation is a near-term concern, HUL has levers in the P&L and good pricing power to offset margin pressures over the medium term. We forecast EPS to rise at 16 per cent CAGR over FY20-23E, supported by a broad-based portfolio and strong distribution network. We value HUL at 62x FY23 earnings to arrive at a price target of Rs 2,750.

Motilal Oswal Financial Services | BUY | Target Price: Rs 2,780

While we have cut our EPS forecasts for FY22E by 4.3 per cent on account of the Covid-led disruption and higher-than-anticipated tax rates, there is no material change to our FY23E EPS. We continue to monitor the situation as it unfurls. The company’s earnings growth has gained further momentum in recent years before Covid (an ~18 per cent EPS CAGR in the four years ended FY20 versus a ~12 per cent CAGR over the 10 years ended FY20). This is particularly impressive given the weak mid-single-digit earnings growth posted by (much smaller) peers in recent years.

HUL's best-of-breed analytics and execution capabilities are key factors driving the pace of earnings growth. The strong outlook on rural, GSK synergies, and sustained growth and premiumization in skin cleansing offer further medium-term tailwinds. 

Kotak Institutional Equities | ADD | Target Price: Rs 2,650

HUL's reported organic revenue and volume growth of 21 per cent and 16 per cent YoY, respectively, (2-year CAGR at ~5 per cent/4 per cent) are on expected lines. Ebitda margin delivery was impressive in the context of gross margin pressure. A good bounce-back of the home care segment and HUL's thrust on Horlicks are encouraging. We expect further price increases to offset raw material inflation notwithstanding a focus on volume growth and market share. We tweak estimates as we roll over and raise DCF based fair value to Rs 2,650 from Rs 2,625 earlier, implying 53X June23E earnings. 

Axis Securities | BUY | Target Price: Rs 2,650

Near term headwinds from raw material inflation and uncertain demand (sudden and unprecedented rise in Covid) exist for HUL. However, the company will look at all levers of cost and take judicious price hikes to manage margins in the near term. 

Over the medium to long term, HUL’s consistent focus on investing behind brands through A&P, execution prowess, distribution penetration, building on digital capabilities, and recovery in discretionary portfolio led by improvement in mobility will support growth. 

Further, tailwinds from the GSK-CH portfolio are yet to be fully captured and thus bode well from an earnings perspective. We maintain BUY with a target price of Rs 2,650 as we value HUL at 55x its FY23E EPS on the back of the long term growth potential of the business. 

JM Financial | HOLD | Target Price: Rs 2,375

HUL’s Q4 report was broadly on expected lines. A slight beat to operating profit emanated from better savings in some of the overheads, which helped offset a steeper-than-expected decline in gross margin. Underlying growth was boosted quite significantly by pricing in the tea business. 
 

Home-care and Personal care growth were quite subdued even when seen from a 2-year CAGR perspective. The much-anticipated recovery in the laundry business could possibly get pushed out by another quarter or so again, given the new rounds of lockdowns being imposed in pockets in the country. Boost from the GSK nutrition business is likely to follow through in FY22E as well. 
 

Distribution and penetration gains and cost-synergies are likely to play out better in FY22E than they did in the year gone by. We expect the stock to be range-bound for now in the absence of any firm trigger. 

Edelweiss Financial | BUY | Target Price: Rs 2,900

We expect HUL to be a key beneficiary of strong rural demand. In terms of Covid-19 impact, we believe the demand situation is dynamic. However, HUL is well placed in terms of its supply chain. We retain BUY with a revised target price of Rs 2,900 rolling forward to September 2022E. The stock is trading at 50.2x FY23E EPS.