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HUL slips over 5% post-Q1 results; good time to buy the stock or sell it?

HUL’s volume growth has been stagnating 4-6% range since the past two financial years amid a drought-like situation in most parts of India in last two years.

, ET Online|
Jul 19, 2016, 01.58 PM IST
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HUL’s volume growth has been stagnating 4-6% range since the past two financial years amid a drought-like situation in most parts of India in last two years.
HUL’s volume growth has been stagnating 4-6% range since the past two financial years amid a drought-like situation in most parts of India in last two years.
NEW DELHI: Shares of Hindustan Unilever (HUL) slipped over 5 per cent in two trading sessions after the company reported a lower-than-expected 4 per cent sales growth for the June quarter.

HUL’s volume growth has been stagnating in the 4-6 per cent range since the past two financial years amid a drought-like situation in most parts of India in last two years.

The last time Hindustan Unilever, India’s largest fast moving consumer goods company, posted double-digit growth in volume was in the March quarter of FY13, said an ET report.

For the quarter ended June 30, HUL’s net profit rose 10 per cent to Rs 1,174 crore during the quarter, helped by exceptional income, mainly from writeback of provisions for employee benefits. Profit before exceptional items grew 6 per cent to Rs 1,128 crore.

Reacting to the results, the stock came under pressure and slipped a little over 5 per cent (intraday) in two sessions. The stock fell from Rs 939.60 recorded on Friday to hit an intraday low of Rs 889 on Tuesday, which translates into a fall of over 5 per cent.

Global brokerage firms such as Citigroup and Credit Suisse maintained sell ratings on HUL post Q1 results, while Nomura gave a buy rating.

The stock has risen about 10 per cent in last six months but has been flat in last three. A good monsoon and passage of the GST bill can trigger good upside in the stock given its all-new portfolio, strong distribution network and market development in premium categories, experts said.

Investors can book profits on the HUL counter and look to accumulate the stock on further declines. For the next one year, the stock may remain subdued.

Here’s what various brokerage firms had to say on the HUL stock post Q1 results:

Citigroup: Sell | Target price Rs 830

Citigroup maintained a sell rating on HUL post June quarter results but raised its 12-month target price to Rs 830 from Rs 825 earlier.

The growth rate remains elusive and the volume growth and Ebitda were below estimates. The management commentary was also bearish based on near-term outlook, Citigroup said in a note.

The Hair and Deos segment are doing well and skin care segment is steady, driven by premium segment. Oral (Pepsodent) continues to disappoint for the company, said the note. The global investment bank said that it find it difficult to be constructive at 45x PE in current outlook.

Credit Suisse: Sell | Target price Rs 930

Credit Suisse maintained a sell rating on HUL post June quarter results with a 12-month target price of Rs 930. The 1Q FY17 earnings were below estimates, and growth will take the time to pick up.

The management was concerned about a slowdown in the rural consumption. The Assam factory could bring significant excise and income tax benefits, said the brokerage note. GST will be a key trigger for HUL and can lower the indirect tax rate by 300-500bps.

HUL: Buy | Target price Rs 1037

Nomura maintained a buy rating on HUL post-June quarter results with a 12-month target price of Rs 1,037. The volume growth of 4 per cent was below Nomura’s expectation of 5 per cent.

The environment remains challenging where market growth has slowed down. Softness in demand is most visible in Maharashtra, Andhra Pradesh and Karnataka. The company continues to see trends of premiumisation in the market, said the Nomura note.
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