Hindustan Unilever extends losses on volume growth concerns

The stock dipped 3% to Rs 892, extending its Monday's 2% fall on the BSE.

Hindustan Unilever (HUL) has dipped 3% to Rs 892, extending its Monday’s 2% fall on the BSE, after the company reported muted volume growth at 4% for the quarter ended June 30, 2016 (Q1FY17).

For the second straight quarter, the fast moving consumer goods major reported 4% volume growth, lower than the 6%-7% band it had seen in previous three quarters.

Management highlighted cautious outlook in the near term and indicated that slowdown is severe and was witnessed across categories. Better monsoon and increase in rural income will be the key enablers for revival in growth.

Analysts at Emkay Global Financial Services said HUL volumes growth was impacted by weak rural demand and slowdown in general trade. The brokerage firm believes HUL has multiple levers which would ensure sustained improvement in margins. Price led growth is also likely in the coming quarters as raw material price has started to move up.

“While input costs are increasingly turning inflationary (pricing lever), we believe HUL’s volume growth outlook looks bleaker in the current weak macro climate,” according to analysts at Religare Institutional Research.

Antique Stock Broking said the management commentary on the demand environment was quite grim as they stated that the market has slowed down this quarter both in volume and value terms compared to last quarter as rural markets continued to lag behind urban markets, the mass segment across categories has shown dismal performance.

The brokerage firm believes their base assumption of 6% volume growth in FY17 remains challenged given the muted demand environment. However, given that higher sowing data and good monsoon could lift the volumes in 2HFY17. Secondly, the gross margin benefit that could accrue due to benign palm oil prices could lead to earnings broadly remaining the same in FY17e.

At 12:41 PM, the stock was down 3% at Rs 893 on the BSE. It was the largest loser among the S&P BSE Sensex and Nifty 50 index stocks. A combined 1.68 million equity shares changed hands on the counter on the BSE and NSE so far.