Shares of Hindustan Unilever (HUL) gained 2 per cent to Rs 2,703.55 in Thursday's intra-day trade, highest level of the current calendar year 2023 (CY23), on hopes of volume recovery.
The stock of largest fast moving consumer goods (FMCG) company traded close to its 52-week high level of Rs 2,741, which it had touched on December 9, 2022. In the past one week, HUL outperformed the market as shares surged 4 per cent, as against 1 per cent rise in the S&P BSE Sensex.
HUL is the biggest FMCG company in India with more than 40 brands across categories. It is the market leader in fabric wash, personal wash, cosmetics, shampoos and many other categories.
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Against the backdrop of a challenging operating environment, the management said that HUL delivered a strong all-round performance in financial year 2022-23 (FY23) led by the company’s focus on growing consumer franchise and protecting its business model.
During FY23, HUL said its home care business witnessed unprecedented inflation in input cost led by sharp rise in prices of key raw materials such as crude, soda ash, caustic soda, and packaging materials.
In the near term, the operating environment is expected to remain volatile due to global slowdown risks and weather-related uncertainty, while inflation has moderated, commodities remain elevated vis-à-vis longer term averages.
Going ahead, HUL expects price-volume growth will rebalance. Price growth will tail off due to lapping of higher prices in the base and sequential easing of inflation. Market volumes, meanwhile, is expected to recover gradually as consumption habits readjust with a lag, the company said.
"The company remains focused on managing our business with agility and growing our consumer franchise whilst maintaining margins in a healthy range. We stay confident of the medium to long term potential of Indian FMCG sector and HUL’s ability to deliver a consistent, competitive, profitable and responsible growth,” the management said.
As major crude & palm oil related commodities have come down considerably in last six to eight months, it resulted in sequential improvement in margins for the company.
However, the extent of improvement on margin as well as volumes was below expectation, said analysts at ICICI Securities.
The brokerage firm believes that the company is passing on benefit on low commodity prices in terms of price cuts or grammage increase aggressively to perk up volumes. Volume growth of 5 per cent in FY23 remains at lower end despite low base.
“We believe sales of discretionary categories in BPC & malt beverage brands in foods segment continuing to remain under pressure. We believe volume growth for HUL to remain in mid-single digit with low pricing growth in FY24,” analysts said.
Moreover, they said that HUL saw 800 bps operating margin expansion in last eight years, which resulted in sustainable profit growth for the company.
"With price disruption in both detergent & personal care category by reliance, margin expansion possibility from already elevated margins of ~24 per cent is limited. Analysts remain cautious on growth outlook as well as possibility on margin expansion," the brokerage firm said, maintaining a 'hold' rating, with a target price of Rs 2,780 per share.