Hindustan Unilever gains 4% post strong March quarter results

Shares of Hindustan Unilever (HUL) were up 4 per cent to Rs 2,230 on the BSE in Thursday’s intra-day trade, after the fast-moving consumer goods (FMCG) major beat estimates on volume growth and earnings front in the March quarter 2022 (Q4FY22).

At 09:34 AM; the stock traded 2 per cent higher at Rs 2,189.55, as compared to 0.42 per cent rise in the S&P BSE Sensex. In the past one month, it has outperformed the market by surging 12 per cent, against 1 per cent decline in the benchmark index. However, the stock has declined 9 per cent, as compared to 15 per cent rally in the Sensex in a year.

In Q4FY22, the country's largest FMCG major saw net profit climb by 5.4 per cent year-on-year (YoY) to Rs 2,304 crore, compared to Rs 2,186 crore from a year-ago period. Meanwhile, net sales grew 10.4 per cent YoY to Rs 13,190 crore led by aggressive price hikes in the home care segment.Given this, the home care segment clocked growth of 23.7 per cent YoY on the back of price hikes taken in the last one year.

Analysts at ICICI Securities believe that the FMCG major's Q4 performance was better than the industry growth. The company’s volume growth was flat in the quarter compared to a contraction of 8 per cent for the industry. That apart, the company's gross margin contracted by 301 basis points (bps) due to unprecedented inflation in crude based derivatives, palm oil, and other agri commodities.

“Despite very high commodity inflation and pressure on rural volumes, the company was able to sustain volumes and operating margins through lower ad-spends and calibrated price hikes. However, we believe incessant crude and palm oil prices would continue to keep margins under check and the company would still require price hikes to protect its margins in near term,” ICICI Securities said in a note.

Meanwhile, analysts at Motilal Oswal Financial Services (MOFSL) believe that the rural volumes took a backseat due to down trading in inflationary times. "FMCG companies would require to increase adspends to previous levels to support new products and categories. Though, we believe HUL is best placed within FMCG industry to face these challenging scenario, next few quarters would see continued volume as well as margin pressure," the brokerage firm added.

Analysts also believe that lower-than-expected premiumization and escalating material costs constrained Hindustan Unilever's earnings growth over the past two years.

“We also believe that HUL is the best prepared among peers, both on the technology front as well as on the e-commerce strategy level, to deal with the potentially significant disruptions going forward. We expect HUL to return to the mid-teens earnings growth range going ahead,” MOFSL added.

Tech view

Outlook: Cautiously positive

Target: Rs 2,408

The stock of HUL is facing firm resistance at Rs 2,228 levels (around the 100-DMA), as per the daily charts. This is evident from the fact that the stock cooled off in the intra-day deals today, after touching a high of Rs 2,230. If it is able to conquer this level successfully, it may rally towards Rs 2,375 level, its 200-day moving average (DMA), and then towards its trendline resistance of Rs 2,408 (as per weekly charts).

The stock's immediate support is placed at Rs 2,136, its 20-DMA.

However, price-to-moving average action on the daily charts suggest, it might be tough for the stock to rally ahead. The 50-DMA is lower than 100-DMA, while 100-DMA is lower than 200-DMA.

Momentum indicators, too, are mixed. The Directional Indicator and MACD suggest slowdown in the momentum with the stock looking for directional cues from bulls and bears. The 14-day Relative Strength Index (RSI) and slow Stochastic indicator, however, suggest mild strength.

(With inputs from Nikita Vashisht)