HUL slips 2% on Jefferies ‘hold’ call and lower target price

Jefferies has cut HUL’s target price to Rs 2,563 from Rs 2,720, saying growth pick-up remains elusive for the FMCG major

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Shares of Hindustan Unilever (HUL) declined 2.6 percent on December 7 morning after global brokerage firm Jefferies shared a “hold” rating on the counter and reduced the target price to Rs 2,563 from Rs 2,720, saying growth pick-up remained elusive for the FMCG major.

The stock has declined over a percent this year, underperforming the benchmark Sensex which has gained 14 percent during the time.

“Our channel checks and industry interactions indicate that October demand trends remained similar to Q2 as festive growth pick-up did not materialise as expected,” Jefferies’ analysts wrote in a note.

The rural trend continues to be a drag, as the impact of a weak monsoon becomes evident, with real wages also under pressure.

“The competition continues to stay high, which should reflect in ad-spends. Put together, the near-term outlook for HUL remains weak. We stay on the sidelines,” they said.

ALSO READ: HUL: After splitting beauty and personal care, what’s next?

Recently, HUL split its beauty and personal care (BPC) segment — beauty and well-being, and personal care — to sharpen focus and align with global Unilever segments. New leaders (Harman Dhillon and Kartik Chandrasekhar) were appointed to head these verticals.

HUL also appointed Arun Neelakantan as the Chief Digital Officer, who is also a member of the management committee, as HUL looks to further accelerate digital transformation.

Competition-wise, analysts have that the resurgence of local and regional players remained an issue and hence, volume growth for larger competition, including HUL, would continue to lag industry growth in the December quarter.

ALSO READ: FMCG giants ramp up ad budgets to drive volume growth and fight competition

That apart, pricing growth for major FMCG majors has turned negative as trade pipelines adjust and product price reductions taken by companies now reflect in retail sales, a Nielsen report has said.

“HUL, too, should see a slight negative pricing growth in Q3. No major pricing changes were done in Q3, albeit price cuts from prior quarters would reflect fully in Q3. This along with muted volumes will likely weigh on revenue growth,” the brokerage firm said.

Jefferies expects HUL to see weak earnings growth in the near term, as volume recovery is gradual, price growth comes off and margin recovery is capped by a ramp up in ad-spends and higher competition.

At 12.21 pm, the stock was trading at Rs 2,519, down 1.84 percent from the previous close.

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