Brokerages turn bearish on HUL due to dull results

MUMBAI: A day after Hindustan Unilever — the FMCG major and a sensex heavyweight — reported a lacklustre growth in volumes and also net profit, several brokerages have turned bearish on the stock and cut the target price by as much as 16% from its Tuesday close. As a result, in Tuesday’s strong market that saw the sensex and the nifty scale new record highs, the HUL stocks closed marginally higher at Rs 896.This came a day after it lost over 5% in a single session on the back of its weak Q3 results.
Of the several brokerages that downgraded the stock, analysts at Emkay Global were the most aggressive, cutting HUL’s target price to Rs 750, down over 16% from its Tuesday close of Rs 896. The brokerage house estimated that in the next two years the company’s earnings growth would be 13%, but said that the stock was still highly valued and, hence, the revised price target of Rs 750.
Analysts at Kotak Institutional Equities said that HUL’s results don’t support the recent spurt in its stock price as the Q3FY15 results “were a miss on all counts as volume growth slipped to 3%, significantly lower versus our estimates of 5-6% growth”. Although the stock recently touched an all-time high at Rs 948, Kotak cautioned investors on the stock. The broking house has downgraded the stock with a target price of Rs 800.
Analysts at HDFC Securities warned investors that HUL’s current stock valuations “seem to completely ignore the emerging risks (like) no visible pickup in demand and further increase in competitive intensity due to raw material prices softening. In addition, rural wages grew by merely 3.8% annually in November 2014, the slowest in 10 years, highlighting the imminent pressure on rural sales”. The brokerage has downgraded the stock to ‘sell’ with a target price of Rs 800. Among the bearish chorus, there are contrarions. Analysts at Prabhudas Lilladher are optimistic on company’s prospects and they believe that although the last quarter results were disappointing, HUL is unlikely to repeat its mistakes of Q4FY09 when it had reported a 4.2% decline in volumes.