Q3FY23 Review: HUL: Improvement underway

20 Jan 2023 , 11:33 AM

HUL witnessed improvement in value and volume growth and mentioned that industry growth is also improving — which is in line with the thesis published in the Outlook CY23 note of IIFL Capital Services. Moreover, margins have bottomed out and gradual improvement is on the cards. The royalty rate increase is a bit of a dampener, but not a material view on EPS, believe analysts at IIFL Capital Services (they have cut by estimates 1-2%).

Skin care (ex-winter care) growth has revived to double digit, which was long awaited; going ahead, quality of growth will improve with volume being a bigger contributor to topline.

Royalty rate increase by 80 bps over a 3-year period is a slight negative; but analysts at IIFL Capital Services feel HUL will drive mix and cost savings harder to offset this, at least partially. Assuming 50% offset, this results in ~1.5-2% EPS downgrade — which is more bark than bite, believe analysts at IIFL Capital Services. After a few days of noise, investor focus would shift back to volume growth and margin, both of which analysts at IIFL Capital Services believe will improve gradually over the next few quarters.

Analysts at IIFL Capital Services have maintained their Add recommendation on the stock with a price target Rs3,000.