hul: Costs are rising, but analysts bet HUL can outperform its peers

Mumbai: Shares of Hindustan Unilever (HUL) rose more than 4% on Thursday after analysts at most major brokerages maintained their buy or outperform ratings and target prices after quarterly results of March better than expected.

Analysts said the company’s volumes and margins are expected to be squeezed for a few quarters due to rising commodity prices. But, they are betting on market-leading HUL to absorb the impact better than its peers.

The stock has underperformed for the past two years after nearly a decade of outperformance. HUL shares were down 2% in the two years, compared to an 84% increase in the Nifty index.

HUL’s net sales rose 11% year-on-year to ₹13,460 crore in the March quarter, while net profit rose 8.6% to ₹2,280 crore from an estimated ₹2,040 crore .

HUL’s current valuations at 47.7 times estimated FY24 earnings per share still leave room for further upside, Motilal Oswal Financial Services said in a note after the March quarter results.

JM Financial said HUL remains one of its preferred picks on the grounds that bad news on demand and margin are well known and the stock is trading below its five-year average valuation multiple.

The company’s ability to control spending and raise prices while maintaining market share has been commendable as it delivered a stable operating margin despite a gross margin contraction of 310 basis points, according to Yes. Securities. “Resilient growth despite significant price increases indicates strong brand awareness and product superiority. We expect near-term growth to remain price and mix driven as volume growth is expected to remain dull until inflation cools and disposable incomes start to rise, which is not expected for the next 2-3 quarters,” Yes Securities said in a note.