Why Hindustan Unilever emerged as top loser despite good Q2FY19 result? Stock down by over 4%, analysts split in two opinions

FMCG major Hindustan Unilever Ltd (HUL) emerged as worst performer on Sensex, as the company tumbled by over 4% on the index. The stock ended at Rs 1526.60 per piece low by Rs 42.05 or 2.68%. However, it has touched an intraday low of Rs 1500.40 per piece dropping by so far 4.27% on BSE.  This was despite, HUL recording increase in the net profit of Rs 1,525 crore up by  19.51% for the quarter ended Sep 30,18.

Apart from PAT, even sales of HUL stood at Rs 9,138 crore as against Rs 8,199 crore in the year-ago period - witnessing growth of 11.45%. 

Talking about HUL performance, Vishal Gutka analyst from Phillip capital said, "HUL saw its fourth consecutive quarter of double‐digit volume growth as rural areas outperformed urban. Performance across segments was broad‐based."

Gupta added that,  the gross‐margin pressures were very well managed as its strategy of focusing on reducing cost inefficiencies, zero‐based budgeting, building responsive and agile supply chains is delivering required results for the company. 

Other expenses of the company remained flat and declined 160 bps (% of sales) year on year.

On the other hand, Rohit chordia, Jaykum Doshi, Aniket sethi of Kotak Institutional equities said, "HUL's 2QFY19 earnings print missed our expectations marginally while beating consensus. Even as earnings growth was in line with the recent quarters, the quality of earnings growth was slightly inferior with (a) lower price-led growth reflecting increased competitive intensity at the margin, and (b) the need to play the adspend line of the P&L." 

The trio added, "That said, healthy earnings growth is healthy earnings growth and to that extent, we would be wrong to term the earnings print anything but good. The earnings print did fall short of supporting stiff forward expectations, however. REDUCE with an unchanged TP (Rs1,430)."

Meanwhile, Elara Capital said, " We maintain our estimates for HUVR with volume/value CAGR of 9%/14% in FY18-21e period. We believe that the value growth will be led by strong pricing increase (+5%YoY) in Home care, Shampoos, Soaps and Oral care where inflation is high currently. Profit growth will be 19% CAGR led by 1) premiumsation (+300bps) 2) operational leverage in overheads 3) cost savings in freight (4.3% of sales) & warehousing (1% of sales) as they go more direct to customer."

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Analysts at Elara said, "We upgrade to Accumulate from Reduce with unchanged TP Rs 1,732 based on P/E(x) of 45x (unch) on Sept’20 EPS of Rs 38.5."

Similarly, Gupta said, " We believe its current valuation (50x FY20 EPS) does not fully factor these risks and we maintain Neutral with a target of Rs 1,760 (50x Dec‐20 EPS) vs. Rs 1,720 (50x Sept‐20 EPS) earlier."

HUL's board has declared an interim dividend of Rs 9 per share of face value Rs 1 each for the financial year ending March 31, 2019.