Hindustan Unilever trades higher for 4th straight day, nears 52-week high

Analysts said the outlook from June 2021 onwards is positive, barring the emergence of a third COVID wave

Shares of Hindustan Unilever (HUL) rose nearly 2 per cent to Rs 2,457.90 on the BSE in intra-day trade on Friday, in an otherwise weak market, on a positive outlook. The stock of the fast-moving consumer goods (FMCG) company was trading close to its 52-week high level of Rs 2,504.30, touched on April 13, 2021. It was trading higher for the fourth straight days. In comparison, the S&P BSE Sensex was down 0.66 per cent at 51,994 points at 12:35 pm.

In the past four days, Hindustan Unilever has outperformed the market by gaining 4 per cent, as compared to a 1.2 per cent decline in the benchmark index.

With various parts of India progressively opening up, the management of Hindustan Unilever believes the impact from the second COVID wave would have peaked in May 2021 and things will progressively get better. The outlook from June 2021 onwards is positive, barring the emergence of a third COVID wave.

An uptick in GDP growth will likely percolate to consumer demand and accelerate penetration growth, premiumisation and shift to branded in key FMCG categories. Thus, absolute FMCG earnings growth too could accelerate in such an environment, even though relative performance appears weaker on earning growth.

During the period of heightened uncertainty and volatility (GFC, demonetisation, first Covid-19 wave etc.), staple stocks may have gone down but have comfortably outperformed Nifty, given their relative demand stickiness, pricing power, and strong balance sheets, analysts at Jefferies said in consumer sector update.

“While April-June quarter (1QFY22) will be impacted by the second COVID wave, the extent will be far lower compared with last year. Rural demand continues to remain resilient, and demand in Health, Hygiene, and Nutrition categories remains healthy. While discretionary demand will be affected, we expect the impact to be lower YoY. EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin is likely to remain under pressure owing to sequential raw material inflation and higher A&P spends,” Motilal Oswal Financial Services said in a stock update.

“Rural market continues to do better than urban, despite experiencing a higher impact from the pandemic in Q1FY22 versus last year. Prediction of a normal monsoon, good Rabi harvest, favourably timed Kharif sowing, and MNREGA (Mahatma Gandhi National Rural Employment Guarantee Act) provide prospective support as well,” the brokerage firm added.