Hindustan Unilever’s shares plunged more than 4 per cent even as the FMCG major reported a decent performance in the December 2022 quarter, but hiked the royalty payment to its parent company. The move is disapproved by the street, said the analysts.
Hindustan Unilever’s shares plunged over 4 per cent to Rs 2,540.05 on Friday following the company’s earnings in Q3FY23, before making a partial recovery. However, the scrip had settled at Rs 2,650.25 on Thursday.
Hindustan Unilever (HUL) has hiked the royalty payment to Unilever by 80 basis points (bps) to 3.45 per cent of the turnover, said the company along with its quarterly earnings. Even after the increase in the royalty outgo, HUL’s payment will be lower than Nestle India, Colgate Palmolive and P&G Hygiene and Healthcare.
HUL’s 3Q results met consensus expectations; however, increase in royalty and central service fees has been a dampener. However, overall impact on operating margins shall be offset with mix-improvement and scale-benefits, said ICICI Securities, with an add rating with a target price of Rs 2,850.
“During the quarter, HUL continues to deliver outperformance in all key segments. Market share gains in fabric wash and HFD have been encouraging. Continued work on category development is tracking well. We note that premium discretionary is outperforming mass discretionary, and HUL is better placed at the former,” it said.
Healthcare segment continued to do the heavy-lifting, beauty and personal care improved a tad notwithstanding the late onset of winter, and F&R lagged due to soft performance of nutrition. The gross margin recovery was on expected lines, said Kotak Instituational Equities, which has an add rating on the stock and sees its fair value at Rs 2,825.
“Easing raw material prices and the likely bottoming out of rural slowdown set stage for robust gross margin recovery starting in 4Q and some pick-up in volume growth. Increase in royalty by 80 bps to 3.45 per cent in the next 2-3 years and termination of GSK-CH OTC products distribution contract drive 2-3 per cent EPS cut,” it said.
HUL reported a 12 per cent YoY jump in net profit at Rs 2,505 crore for the December quarter compared with Rs 2243 crore in the same quarter previous year. Its total sales for the quarter jumped 16 per cent to Rs 14,986 crore on a yearly basis, whereas volume growth for the quarter came in at 5 per cent to Rs 15,343.0 crore.
Nirmal Bang Institutional Equities has raised its target on HUL to Rs 3,065 from Rs 3,055 earlier, whereas Motilal Oswal Securities has maintained its Rs 3,100 target on the scrip. Nuvama Institutional Equities has also increased its target price to Rs 3,365, which was Rs 3,140 earlier.
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