HUL drops as margin contraction, volume growth disappoints Street

Share price of FMCG major Hindustan Unilever dropped more than a percent during the Muhurat trading session on October 24 as the company posted a contraction in its EBITDA margins for the September quarter.

At 7:00 PM, the stock was quoting Rs 2,574 per share on the National Stock Exchange, down by 1.03 percent from its previous close of Rs 2,600.

Catch all the Muhurat trading action here

The company’s net profit grew 19.6 percent year-on-year to Rs 2,616 crore in the quarter ended September. Revenue increased 15.9 percent YoY to Rs 14,751 crore during the quarter. EBITDA rose by 7.8 percent to Rs 3,377 crore, but margins fell by 170 bps YoY from 24.6 percent to 22.9 percent.

“The quarter saw high priced inventory come into the system, which led to sharp margin slippage,” said Amnish Aggarwal, Head of Research, Prabhudas Lilladher.

Watch: Samvat 2079 | D-Street Stars Talk About Markets, Sectors And Stocks To Watch | Muhurat Roundtable

Underlying volume growth of 4 percent was also below Street expectations. Experts had pegged volume growth at 5 percent.

“Demand environment remains challenging with inflation impacting consumption. However, with softening in some commodities and monetary/ fiscal measures taken by the government, we are cautiously optimistic in the near term. In this scenario, we will manage our business with agility, and continue to grow our consumer franchise whilst maintaining our margins in a healthy range,” top boss of the company Sanjiv Mehta said.

Analysts at Prabhudas Lilladher expect inflationary pressures to have peaked out and hope for sequential margin recovery from here on. They have an Accumulate rating on the stock with a target price of Rs 2827.

(Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.)