CLSA, Edelweiss Securities and YES Securities have maintained buy rating with a price target of Rs 2,600, Rs 2,620 and Rs 2,500, respectively, while JP Morgan has maintained overweight. The target prices indicate an upside of up to 21 per cent from the current market price.
Shares of the company traded 0.59 per cent down at Rs 2,159 in early trade after the company appeared to be cautiously optimistic on demand recovery. On the other hand, the benchmark BSE Sensex was up 0.98 per cent at 40,941 at around 10 am (IST).
While addressing a post earning call, HUL CFO Srinivas Phatak said, “The worst is behind us and the business is clearly picking up momentum. And therefore, I think what we want to call out is cautious optimism.”
Indian economy saw an unprecedented 23.9 per cent contraction during April-June as the lockdown imposed to curb the spread of coronavirus pummelled demand and investment.
YES Securities said that management commentary, though cautious, gives confidence that the worst is behind us although the timing of recovery in urban demand still remains uncertain.
“HUL through its sharp execution, operational agility and brand portfolio seem well prepared to benefit from the impending recovery much ahead of the competition. We would therefore expect another phase of outperformance to resume post the recent consolidation and expect the stock to re‐rate towards 50 times FY23 earnings from current levels of 44 times, implying a fair value of Rs 2,500,” the brokerage said.
On the other hand, Edelweiss Securities added that gross margin suffered a hit of 147 basis points YoY due to the impact on high margin business (beauty and personal care) and a spike in inflation in some key raw materials (tea, palm oil). However, it added that a sharp cut in advertisement spends (down 224 basis points YoY) aided EBITDA margin (up 28 basis points YoY).
“Overall, an improving portfolio mix combined with HUL’s cost control and synergies from the GSK takeover should aid EBITDA margin,” Edelweiss added.