Hindustan Unilever surges 5%, hits new high; m-cap nears Rs 5 trillion

Shares of the fast moving consumer goods (FMCG) giant Hindustan Unilever (HUL) rallied 5 per cent and hit a new high of Rs 2,259 on the BSE on Wednesday. The stock surpassed its previous high of Rs 2,204 recorded on February 4, 2020.

With today’s gain, HUL has outperformed the market by surging 11 per cent thus far in February. In comparison, the S&P BSE Sensex was up 2 per cent, while the sector index S&P BSE FMCG slipped 0.06 per cent during the same period.

A sharp rally in stock price has seen the market capitalisation (m-cap) of HUL surge to nearly Rs 5-trillion mark. HUL’s m-cap touched Rs 488,966 crore (Rs 4.89 trillion) so far in intra-day trade today.

Analysts believe the company’s focus on innovation and market development will help the company in achieving sustainable volume and value growth going forward. They expect HUL’s high-teens earnings growth on an organic basis (23 per cent CAGR including the GlaxoSmithKline Consumer Healthcare merger and synergies) witnessed in recent years to continue.

Meanwhile, the stock of GSK Consumer Healthcare, too, hit an all-time high of Rs 9,605, up 4 per cent today.

Analysts at Motilal Oswal Securities maintain ‘buy’ rating on the stock with target price of Rs 2,490 per share.

“HUL has been a stellar performer over the past decade, both in terms of earnings and stock price. Also, it has significantly outperformed some of its large-cap consumer peers over the same period. From a near-term perspective, favorable base in the next few quarters, expected recovery in the demand environment from Q2FY21, synergies from the GSK Consumer Healthcare merger, price increase in soaps and lower crude costs are likely to boost earnings,” the brokerage firm said in company update.

“HUL delivered a decent set of numbers in Q3FY20 both on the volume and the profitability front amidst a weak macroeconomic background characterized by low consumption activities. The company’s margins increased on the back of lower raw material prices and undertook cost savings initiatives. The fall in crude prices and other cost cutting initiatives undertaken by the company will lead to further EBITDA margin expansion to around 27 per cent by FY21,” analysts at KRChoksey Shares and Securities said in result update. The brokerage firm have ‘accumulate’ rating on the stock with price target of Rs 2,312.

There is scope for significant topline and bottom-line synergies from the GSK Consumer merger. In a volatile market, HUL's stock could fare better (defensive) on a relative basis and sustain premium multiples in our view if it continues to hold on to mid-single digit volume delivery in the current slow consumption environment. GSK merger conclusion and Unilever’s strategic review of global tea business (expected to be concluded over the next six months) would be key events to watch out for, JP Morgan said in result update. However, the foreign brokerage firm has ‘neutral’ rating on the stock with December 2020 target price of Rs 2,150.