Hindustan Unilever’s (HUL) December quarter results were ahead of analyst estimates, but the hike in royalty payments was a slight negative. That said, even at 3.45 per cent royalty by 2027, HUL’s royalty payment will be lower than that of Nestle India, Colgate-Palmolive and Procter & Gamble Hygiene & Health Care, analysts said, who have either maintained or slightly increased their price targets for the stock post the quarterly results.
Nirmal Bang Institutional Equities has raised its target on the stock to Rs 3,065 from Rs 3,055 earlier. Nuvama Institutional Equities has upped its target price on the stock to Rs 3,365 from Rs 3,140 earlier. Motilal Oswal Securities has maintained its Rs 3,100 target on the scrip.
Nuvama Institutional Equities said royalty increase is a negative, but coming at a time when worst of raw material inflation is behind. “Royalty scheme came to an end (completed its 10 years in January) and, hence, slight increase has come
In spite of this, we do expect overall Ebitda margins to improve as worst of RM inflation is behind and in our view the royalty hike of 45 bps in first year can be easily absorbed,” it said.
Motilal Oswal Securities noted that the royalty decision also requires a majority of minority shareholders’ approval and “is not a CG risk in our view.” Even at 3.45 per cent royalty by CY27, HUL’s royalty rate will be well below that of Nestle India, Colgate and Procter & Gamble Hygiene & Health Care whose royalties to parents are roughly 5 per cent, Motilal Oswal Securities said.
HUL had on Thursday said it would raise royalty by 80 basis points to 3.45 per cent of turnover from 2.65 per cent in FY22 in a staggered manner over a period of 3 years. HUL last entered agreement with Unilever group in January 2013 for a period of 10 years.
As far as quarterly results were concerned, Nirmal Bang Institutional Equities said HUL’s operating performance was ahead of its estimates, with underlying volume growth coming in at 5 per cent, marginally higher than its estimate.
“Imputed 11 per cent YoY pricing growth was higher than our estimate of 8.6 per cent. Near term growth will continue to be price-led even after the recent price cuts in tea and soaps. We remain hopeful of a better growth environment in 4QFY23 and FY24, along with a sequential margin improvement as Net Material Inflation (NMI) is expected to fall further in March quarter against third quarter,” it said.
HUL reported a 12 per cent year-on-year (YoY) jump in net profit at Rs 2,505 crore for the December quarter compared with Rs 2243 crore in the same quarter last year. HUL said its total sales for the quarter jumped 16 per cent YoY to Rs 14,986 crore. Volume growth for the quarter came in at 5 per cent.
The FMCG major said more than 75 per cent of the business saw expansion in market share. Ebitda margin for the quarter came in at 23.6 per cent, improving 30 basis points (bps) sequentially, but down 180 bps on YoY basis.
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