HUL, ITC decline post-Q2 results; here is what brokerages recommend

HUL, ITC Q2 results: FMCG majors Hindustan Unilever (HUL) and ITC Ltd slipped on Friday, October 20, a day after the companies released their September quarter numbers. HUL shares slipped as much as 2.47 per cent to Rs 2,484.80 apiece on the BSE, while those of ITC declined as much as 2.88 per cent to Rs 437.30. At close, HUL shares stood at Rs 2,495, down 2.07 per cent while ITC ended at Rs 438.25, down 2.68 per cent on the BSE.

Here's how HUL and ITC fared in the September quarter.

HUL

The FMCG behemoth 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). It 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

The volume growth at 2 per cent was below the estimates of 3 per cent while margins were above Zee Business analysts' estimates at 24.2 per cent. 

ITC 

Its standalone net profit for the quarter under review came in at Rs 4,926.96 crore, up 10.3 per cent YoY, while its revenue from operations stood at Rs 17,705.08 crore, up 3.17 per cent against Rs 17,159.56 crore logged in the year-ago period. Zee Business analysts had estimated revenue to rise 4.5 per cent YoY while net profit was expected to increase 11 per cent YoY to Rs 4,958 crore against Rs 4,466 crore logged in the year-ago quarter. Margins came in at 36.5 per cent against the Zee Business estimates of 38 per cent. 

"When raw material prices are falling, it becomes a level playing field for both unorganised and organised competition," said Shirish Pardeshi, research analyst at Centrum Broking.

ITC, home to household brands such as Aashirvaad, Bingo, and Yippie, said its biscuits, snacks, noodles, and soap businesses faced increasing competition, including from regional players. Dove soapmaker Hindustan Unilever said it lost some market share in its mass segment, comprising lower-priced products, due to competition.

What brokerages suggest

HUL

Morgan Stanley has maintained an 'equal weight' rating on the stock with a target price of Rs 2,502. JP Morgan has maintained 'overweight' on the stock with a target price of Rs 2,800. Jefferies, on the other hand, has given a "hold" call on the stock and has cut the target price to Rs 2,720 from Rs 2,770 earlier.

Citi has maintained a "buy" call on the stock with a target price of Rs 3,000. Goldman Sachs has maintained a "neutral" rating on the stock and cut the target price to Rs 2,700. Macquarie has given an "outperform" rating with a target price of Rs 2,800.

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.

ITC

Domestic brokerage Prabhudas Lilladher, in its result review note, said that ITC EBITDA growth at 3 per cent was below estimates due to a sharp decline in Paperboard segment EBIT by nearly 50 per cent and moderation in cigarette volume growth to 4.9 per cent on a normalised and high base.

"FMCG EBIDTA margins of 11 per cent (36.8 per cent EBIT growth) and 49.6 per cent EBIT growth in hotels have been positive. We expect cigarette volume growth to moderate to the 4-5 per cent range in 2H24. FMCG business is expected to gain from the festive season, expected uptick in rural demand, and scale economies. We believe the paper and paperboard business is near the bottom and expect QoQ margin improvement in the coming quarters. We expect strong growth from hotels and FMCG to sustain given benign input costs and a strong demand outlook for both domestic and foreign travel," the brokerage said in its report dated October 20.

It has maintained an 'accumulate' rating on the stock with a target price of Rs 492.

With inputs from Reuters