HUL shares rise 1% in a weak market; 6 brokerages keep faith in the stock

It closed with a gain of 0.72% at ₹2,501.15 on BSE.

The stock witnessed gains after brokerages maintained their faith in the stock following the company’s business updates on Capital Markets Day 2022 for institutional investors and financial analysts on November 18, 2022.

As per a BSE filing, the company said its FY22 turnover stood at ₹50,336 crore, while EBITDA for the year stood at 24.8%.

The stock hit its 52-week high of ₹2,733 on BSE on October 3, 2022. As of November 18, the stock is 9% down from its 52-week high.

HUL stock in last one year

Most brokerage firms maintained their views on the stock even though some of them also highlighted the near-term pain.

Brokerage Phillip Capital maintained a buy call on the stock with a target price of ₹3,200, implying a 29% upside.

Phillip Capital continues to maintain its positive stance given management’s focus on driving business growth via consistency in strategy and best-in-class execution capabilities.

“HUL strategy remains ‘more of the same (a) driving the core (b) focusing on premiumization (c) market development with regards to categories of tomorrow and (d) at the same time, ensuring modest margin expansion, although in the near term, hyperinflation in the raw material index could keep gross margins under check,” said Phillip Capital.

“However, this year’s analyst meeting laid increased emphasis on (1) using data to fuel growth in emerging categories/channels (2) sustainability (increasing usage of environmentally friendly ingredients across categories, reducing the usage of plastic in packaging) (3) showcasing its R&D prowess which enables it to make differentiated products and thereby gain a competitive edge and (4) creating new competitive moats – agile innovation hub, prowess in digital ordering and entire ecosystem for D2C brands,” Phillip Capital said.

The brokerage firm has cut its earnings per share (EPS) estimates by 0.5-1% for FY24-25 to account for the termination of the contract of distributing products of GSK but continues to maintain its high conviction ‘buy’ with a target price of ₹3200 (60 times FY25 EPS).

Motilal Oswal Financial Services maintained a buy call on the stock with a target price of ₹2,900, citing the company continues to place the building blocks for future growth and has been able to do so ahead of peers.

“HUL’s Annual Investor Meet once again underlined the moats the company has and the remarkable nimbleness it continues to exhibit despite being much larger than its peers. It continues to display dexterity despite its larger size, even as it continues to grow faster versus peers,” said Motilal Oswal.

“HUL continues to strengthen the key drivers of its success in India over the last decade, including (a) pioneering the use of technology to generate data and facilitate decision making, (b) the Winning in Many Indias (WiMI) strategy, focused on decentralization and localized strategies, (c) recognizing trends and investing in them early on, (d) funnelling cost savings back into the business, and (e) its strong execution ability, which has led to positive earnings momentum,” Motilal Oswal said.

Elara Securities upgraded the stock to a ‘buy’ from an ‘accumulate’ but kept the target price unchanged at ₹3,060 based on 58 times September 2024E EPS of ₹52.8.

Elara pointed out that while rural demand remains a cause for concern in the near term, due to high inflation, HUL has retained its target of achieving double-digit EPS growth in the next decade, led by modest margin improvement, which is encouraging.

“In the near term, the company will focus on getting back to normalized pre-COVID gross margin of 53-55%, led by softening input prices. However, it would continue to increase spending on advertising,” said Elara.

JM Financial Institutional Securities maintained its buy call on the stock but reduced the target price to ₹2,855 from ₹2,900.

“The focus for HUL for the medium-term continues to be to drive market development and premiumisation (achieve two times market growth rates in these segments) while aiming to grow better versus the market in the core categories, and win decisively in channels of the future (grow 4 times of market in e-commerce),” said JM Financial.

Kotak Institutional Equities has an ‘add’ call on the stock with a fair value (target price) of ₹2,825.

“HUL’s management reiterated its strategy of growing the core, market development at scale and premiumisation. The key highlight was thrust on multiple fronts to create new competitive moats: (1) steady progress ahead of competition digital/analytics/R&D capabilities, (2) adoption of an agile innovation model that enables the launch of new digital-first brands in weeks from months, (3) digitization of Kiranas, the launch of 14 D2C platforms and design of D4C ready packs, and (4) continuous market development and premiumization efforts notwithstanding externalities,” said Kotak.

Brokerage firm Nuvama Wealth Management (formerly Edelweiss Securities) maintained a buy call on the stock with a target price of ₹3,140.

Nuvama believes that while short-term pressures from inflation have a bearing on margins, easing volatility and cost controls can help HUL counter its effect.

The brokerage firm underscored that HUL is confident of steadily regaining its gross margins. The company expects market development, premiumisation, product superiority (700 R&D scientists) and continued investments towards brands as key growth drivers.

“We remain positive on the company’s ability to execute and deliver robust performance led by an agile and aggressive approach. Management believes that the company has never been as strong in the last ten years and the best is yet to come,” said Nuvama Wealth.

According to a MintGenie poll, an average of 39 analysts have a ‘buy’ call on the stock.

Disclaimer: The views and recommendations given in this article are those of broking firms. These do not represent the views of MintGenie.