HUL shares to rise by 16 per cent? What investors should know about FMCG majors possible performance

After recording a 14% rise in Q1FY20 PAT, investors were optimistic on FMCG-major Hindustan Unilever Limited (HUL) share price so much that the stock gained a little over 2% on stock exchanges. The company’s share after touching an intraday high of Rs 1,731.95 per piece on Sensex, ended at Rs 1,728 per piece up by Rs 34.80 or 2.06%. HUL’s first-quarter performance for FY20 was in line with analysts estimate. The company posted a net profit of Rs 1,755 crore in Q1FY20, up by 14.10% from Rs 1,529 crore a year ago during the same period. While HUL's revenue from operation soared by 6.71% to Rs 9.984 crore in Q1, compared to Rs 9,356 crore in Q1FY19. Post Q1FY20 result, HUL share is seen to rise by nearly 16% ahead. 

During the result announcement, Sanjiv Mehta, Chairman and Managing Director commented: Against the backdrop of moderate market growth, HUL has delivered a resilient performance driven by the expansion of our consumer franchise, improvement in portfolio mix and sustained growth in margins. Our focus on strengthening the core, leading market development & premiumisation, driving channel transformation and building brands with purpose, continues to serve us well."

Standard Chartered in its research note explained why HUL shares are going to rise. In its note, the highest target price of Rs 2,000 has seen a possibility for HUL. The note said, the stock has maintained its overall longer-term positive trend-making higher highs and higher lows. It has begun to see some consolidation since the past one year. The weekly RSI has shown a negative divergence, indicating the trend is likely to stay subdued or correct in the near term. Supports are at Rs 1,600 and Rs 1,480, while resistances are seen at Rs 1,800 and Rs 2,000.

Meanwhile, Amnish Aggarwal and Nishita Doshi Research Analysts at Prabhudas Lilladher said, “We upgrade HUVR from HOLD to Accumulate given that HUVR should emerge as one of the biggest gainers from Govt’s social push aimed at bottom end of pyramid and increase in rural purchasing power on improved monsoons and food inflation.”

The duo added, “Although 2Q outlook remains uncertain, We remain structurally positive on HUVR led by 1) expansion in categories of future by launching liquid detergent in Sunlight 2) increased thrust on naturals with launch of Lux botanicals and Pears Naturale, two variants in Sunsilk and FAL Ayurveda facewash and facial kits 3) sustained Premiumisation in Home Care 4) synergy gains from acquisition of Glaxo Consumer healthcare and 5) sustained gains (70bps in 1QFy20) from cost efficiencies in supply chain, data analytics and inventory management.”

Hence, they said, benign competitive environment, improved product mix and cost efficiencies gives us comfort to increase our EBIDTA margin estimates by 30bps over FY19-21 (110bps expansion) leading to 1.3% and 0.6% increase in EPS estimates for FY20 and FY21. We estimate FY21 pro-forma EPS including GSK acquisition of Rs38.3 and value the stock at 46xJune21 arriving at target price of Rs1816. We strongly advise Accumulating HUL in uncertain markets.

A Rs 1,816 target price is also set by Elara Capital on HUL. Sagarika Mukherjee, analyst at Elara said, “We lower our EPS by 4% for FY20E and 2% by FY20E, led by 1) the cut in volume growth from 9.5% to 6.0% and a price cut from 3% to 1% offset by gross margin expansion of 120bp, led by benign raw material prices & EBITDA margin rising to 25.1%, up 252bp YoY, led by INDAS 116 impact (SG&A: down 111bp) and cost rationalization in ad spend, down 78bp. We upgrade to Accumulate from Reduce, due to a stock price correction of -3.4% over 3 months, with a 3% lower TP of INR 1,816 on 45x (unchanged) FY21E exit P/E with merged EPS of INR 40.4.”