HUL shares jump 4% on robust Q4; analysts see more upside

Shares of Hindustan Unilever Ltd (HUL) rose 4% in early trade on Thursday a day after the FMCG major released its March quarter earnings. Investors cheered HUL’s better-than-expected fourth-quarter results and dividend declaration even after the company’s management cautioned against high input costs, rising inflation, weak volume, and margin risks. Most analysts also retained their bullish ratings and also maintained the target price of the stock with a potential upside of up to 17%.

Boosted by strong Q4 results, HUL shares opened higher with a gain of 2.79% at ₹2,204 apiece on the BSE, against the previous closing price of ₹2,144.25. In the early hour of the day’s trade so far, the stock rose as much as 4% to hit a high of ₹2,230. In comparision, the BSE Sensex was trading 200 points, or 0.35%, higher at 57,020 levels at 10:40 am.

Q4 results beat estimates

Hindustan Unilever Ltd (HUL) on Wednesday reported a standalone net profit of ₹2,327 crore for the fourth quarter ended March 31, 2022, compared to ₹2,143 profit during the same period last year, registering a year-on-year growth of 9%. The FMCG major’s turnover rose 10% with flat underlying volume growth at ₹13,190 crore compared to ₹11,947 crore during Q4 FY21. The EBITDA (earnings before interest, taxes, depreciation and amortisation) touched ₹3,245 crore, up 10% YoY vs ₹2,957 crore in Q4 FY21, while the EBITDA margin declined 20 bps to 24.6% during the quarter under review.

Commenting on Q4 results, Sanjiv Mehta, CEO and Managing Director, says, “In challenging circumstances, we have grown competitively and protected our business model by maintaining margins in a healthy range. I am also pleased that we have become a ₹50,000 crore turnover company in this fiscal.”

“Our consistent performance is reflective of our strategic clarity, strength of our brands, operational excellence, and dynamic financial management of our business. While there are near term concerns around significant inflation and slowing market growth, we are confident of the medium to long term prospects of the Indian FMCG sector and remain focused on delivering a Consistent, Competitive, Profitable and Responsible growth,” he added.

HUL's board also declared a final dividend of ₹19 per share for the full financial year, subject to the approval of shareholders at the AGM. Together with the interim dividend of ₹15 per share, the total dividend for the year amounts to ₹34 per share.

Analysts view on Q4 earnings

Domestic brokerage firm ICICI Securities said that HUL's flat volume performance in Q4 FY22 was good in the context that price-pointed packs had around 3% impact on volume and overall FMCG industry declined more than 5%. Supply side inflation amidst demand slowdown is a tough situation to be in, it added.

The analyst at ICICI Securities has maintained “ADD” rating with a unchanged target price of ₹2,450. Key downside risks are delayed recovery in demand, sustained raw material inflation and irrational competition, as per the report.

Motilal Oswal in its report said that Hindustan Unilever’s pre-Covid earnings were robust as compared to mid-single-digit growth posted by its staples peers. With valuations at 47.7x FY24E, HUVR’s earnings per share (EPS) have room for further upside and is expected to return to mid-teens earnings growth. The agency has maintained buy rating on the stock with a target of ₹2,500 (premised on 55x FY24 EPS) implying 17% upside.