HUL shares slip over 1% as parent Unilever lowers sales guidance

Unilever said underlying sales growth would be below guidance in 2019 and in the first half of 2020 because of a slowdown in South Asia and weakness in West Africa

Shares of Hindustan Unilever slumped 1.6 per cent to Rs 1,932 on the BSE on Thursday after the company's parent, Unilever, cut its sales guidance for calendar years 2019 and 2020 amid growth concerns in India, its largest market by volume and second-largest by value.

In an unscheduled sales update on Tuesday, the world's second-largest consumer goods company, Unilever, said that underlying sales growth would be below guidance in 2019 and in the first half of 2020 because of a slowdown in South Asia and weakness in West Africa. Unilever has a 67 per cent stake in Hindustan Unilever (HUL).

According to sector analysts, growth concerns had been priced in, with the company management indicating that near-term recovery would be weak.

During the company’s second-quarter results for FY20, the management said challenges remained in the domestic fast-moving consumer goods (FMCG) market and that rural growth had halved versus urban growth,” said Naveen Trivedi, research analyst at HDFC Securities.

But some analysts remain wary, saying the slowdown may prolong in India and that Unilever's sales update is an indication of that. “Contrary to Street expectations of a demand recovery in the second half of FY20, the environment has continued to deteriorate,” said Nitin Gupta, FMCG analyst at SBICap Securities. “According to our channel checks, month-on-month growth has deteriorated gradually in October and November of 2019,” he said.

Credit Suisse lowered its price target on the stock from Rs 2,180 to Rs 2,150. According to a CNBC TV18 report, the redit agency said the growth guidance cut implies revenue growth below 5 per cent and volume growth of around 3 per cent in Q3.

At 10:05 AM, HUL's stock price was down 1.23 per cent at Rs 1937 as compared to 0.17 per cent gain in the benchmark S&P BSE Sensex. A combined 6.12 lakh shares have changed hands on the NSE on the BSE so far.

In the last one year, HUL's stock price has gained 6.7 per cent, much lower as compared to the Sensex which has risen 14 per cent in the same period.

On the sectoral level, market research agency Nielsen has already forecast a low single-digit FMCG growth rate for the October-December period versus mid-single-digit growth seen in July-September for the market. The research agency also said rural growth had crashed to a seven-year low in the September quarter to 2 per cent and that weakness would remain in the subsequent months as well.

The Nifty FMCG index has underperformed the benchmark Nifty index by slipping 1.3 per cent in the last one year as compared to almost 12 per cent gain in the latter.