HSBC says HUL has been five-year market laggard now, double downgrades stock to 'Hold'

HSBC downgrades HUL: Global brokerage firm HSBC has double-downgraded the stock of FMCG major Hindustan Unilever (HUL) to 'Hold' from 'Buy' and has cut the target price to Rs 2,700 from Rs 2,950 earlier. In its report, the brokerage said that HUL has been a five-year market laggard now, in part due to the unwinding of a significant past re-rating phase.

HSBC added that HUL's lacklustre Q2 performance hasn’t helped, with areas of weakness persisting in the portfolio, and unless markets turn deeply risk-averse, it sees little upside in the stock. 

Shares of the company ended 0.24 per cent lower at Rs 2,478.55 on the BSE. 

HUL Q2 results 

Hindustan Unilever (HUL) on Thursday, October 19, reported a 3.8 per cent year-on-year (YoY) rise in its standalone net profit at Rs 2,717 crore for the quarter ended September 30, 2023 (Q2FY24). The FMCG major had posted a net profit of Rs 2,616 crore in the year-ago period.

Its revenue from operations for the quarter under review came in at Rs 15,027 crore, up 3.5 per cent against Rs 14,514 crore logged in the corresponding quarter of the previous fiscal.

Both the bottom line and top line were above analysts' estimates. Zee Business Research had estimated revenue at Rs 15,224 crore, up 3 per cent YoY, while the net profit was expected to remain flat at Rs 2,603 crore.

Earnings before interest, tax, depreciation, and amortisation (EBITDA) for the quarter came in at Rs 3,694 crore, up 9 per cent. EBITDA margin increased by 130 bps YoY to 24.6 per cent. READ MORE 

JM Financial, in its results review note, said that the hope for a gradual volume recovery in rural remains, given the reversal of inflation, higher infrastructure spends by the government, and expectation of tailwinds from a good festive season. On the other hand, the consequence of a weaker monsoon and the volatility in crude oil prices are the key watch-outs at this stage. "We expect HUL’s stock to be under some pressure on the back of the weak Sep-Q report, and the absence of a clear volume trigger at this juncture," it added. 

It has assigned a "buy" rating on the stock with a target price of Rs 2,880.