HUL royalty hike dampens strong show in Q3 earnings: Should you place your bet?

Hindustan Unilever has posted standalone revenue from operations at Rs 15,228 crore, up 16 percent against Rs 13,092 crore, YoY.

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Hindustan Unilever (HUL) shares opened lower on the bourses likely impacted by the higher royalty that the FMCG giant will pay to its parent Unilever.

Hindustan Unilever on January 19 released its December quarter (Q3FY23) results wherein its standalone net profit increased by 12 percent to Rs 2,505 crore.

The company had reported a profit of Rs 2,243 crore in the year-ago period.

The standalone revenue from operations came in at Rs 15,228 crore, up 16 percent against Rs 13,092 crore logged in the corresponding quarter of the previous fiscal.

Also read: Hindustan Unilever: Higher royalty a bugbear, but investors are a pragmatic lot

The numbers beat estimates as according to a poll of brokerages, standalone revenue was expected to come in at Rs 14,904 crore, up 13.8 percent YoY while profit after tax (PAT) was estimated to increase 8.3 percent YoY to Rs 2,481 crore.

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Here is what brokerages have to say about stock and the company post December quarter earnings:

CLSA

Brokerage house has kept ‘outperform’ rating on the stock with a target at Rs 2,950 per share amid strong top-line & volume growth.

The elevated key raw material prices impacted margin despite some improvement.

There was a new agreement with Unilever for higher royalty rates, however, as per SEBI, majority approval of minority shareholders required only if royalty exceeds 2 percent, reported CNBC-TV18.

Also read: HUL hikes royalty payment to Unilever by 80 bps to 3.45% of turnover

Citi

Broking firm Citi has kept ‘buy’ rating on the stock with a target at Rs 3,050 per share.

The rural recovery cheer is dampened by higher royalty, while revenue growth is driven by underlying volume growth.

The management has highlighted that rural slowdown is likely bottoming out and despite increase in royalty rate, the management maintained long-term CAGR guidance.

The CAGR to be driven by combination of revenue growth & modest margin expansion, reported CNBC-TV18.

Jefferies

Research house maintained ‘buy’ rating on the stock and kept the target at Rs 3,100 per share.

The company clarified that requisite regulatory approvals will be taken for royalty hike, while management justified that the increase based on benefits enjoyed by company.

Overall Q3 was in-line, volume growth was ahead & home-care business outperformed, reported CNBC-TV18.

Sharekhan

Retain Buy with a reduced Price Target of Rs 2,900

Strong collaboration with parent aided HUL to double its revenue and expand EBIDTA margin by 1,000 bps over the last decade

The company has agreed to pay incremental royalty charges by 80 bps to the parent in achieving its aspiration of consistent double-digit earnings growth in the coming years

The overhang of royalty increase after a period of five years would reflect in trim-down of the valuation multiple

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