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Informist, Thursday, Oct. 24, 2024

MUMBAI – Three brokerages have retained their ratings for Hindustan Unilever Ltd. after the company reported lower-than-expected earnings late Wednesday, with two brokerages reducing the target price and one increasing the target price.

Prabhudas Lilladher cut its target price for Hindustan Unilever to INR 2,744 from INR 2,811, while Nirmal Bang Institutional Equities cut the target price to INR 2,805 from INR 2,875. On the other hand, Nuvama Institutional Equities increased its target price marginally to INR 3,395 from INR 3,375. 

Prabhudas Lilladher and Nirmal Bang retained their 'hold' ratings for the stock, while Nuvama retained its 'buy' rating. Hindustan Unilever reported a net profit of INR 26.12 billion on revenues of INR 155.08 billion, but missed analysts' estimates of INR 27.08 billion for the net profit.

A gradual rural recovery along with pricing growth bode well for Hindustan Unilever's long-term growth trajectory, Nuvama Institutional Equities said. The brokerage arrived at its current target price by rolling forward to the earnings of the September quarter of 2026-27 (Apr-Mar). The company has decided to separate its ice cream business by the end of this financial year in order to sharpen its focus on core segments. Nuvama, however, believes exiting the ice cream business is not the best option for Hindustan Unilever. Ice cream is a high-growth business and the company is the number two player, Nuvama said. The brokerage cites competition from regional players and a price war in the company's key segments as key risks for the stock.

The recovery of urban demand might be delayed due to high food inflation which will curtail significant margin expansion from current levels, Prabhudas Lilladher said. The brokerage cut the earnings per share estimate of the company by 4.1% in FY25, 5.2% in FY26, and 5.7% in FY27 due to softening of urban demand, inflation, and sustained competitive intensity across the mass segment. The brokerage said its target price values the company at 53.6 times the price to earnings ratio basis the earnings for the 12 months forward to September FY26.

Hindustan Unilever's historical outperformance was more pronounced during the second half of last decade despite a muted sales compounded annual growth rate of 6% during FY14-FY20, Nirmal Bang said. The brokerage expects the company's profit before tax to grow at a compounded annual growth rate of 8.9%, lower than the five-year and 10-year compounded annual growth rate levels of 9.5% and 11.1%, respectively. The brokerage said its target price values the company 53 times the price to earning ratio basis the earnings for the 12 months forward to September FY26. 

At 0958 IST, shares of Hindustan Unilever traded at INR 2,520 on the National Stock Exchange, down 5.2%.

End

Reported by Akshay V. Johnson

Edited by Namrata Rao

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