HUL may not buck slowdown, but stock’s still top FMCG play

A day ahead of its results for the quarter to June, the stock of FMCG bellwether HUL closed 2.7% lower — its lowest close so far this year.

Investors seem to be factoring in the high likelihood of a subdued performance given the overall slowdown in economic growth.

The company’s revenue growth for the quarter is estimated to be around 8-9%, aided by a volume growth of 5-6%. The slowdown in rural economy is likely to have an impact on its volume growth.

Despite this, profitability is likely to be maintained, with the operating profit margin pegged at over 23%.

Cost control, premiumisation of portfolio, rationalised ad spends and digital marketing are the levers enabling the company to protect its margin.

HUL’s performance during the quarter could be another manifestation of the slowdown that started to show up in the preceding three-month period.

After five quarters of double-digit volume growth, the company posted 7% volume growth for the quarter to March. Chairman Sanjiv Mehta said at the time that FMCG is recession-resistant but not recession-proof.

After the Q1 results, investors would want to watch out for the management commentary on the impact of delayed monsoon, rural demand, private labels in modern trade and post-budget outlook. The company is likely to be a strong performer among its peers in the sector amid slowdown in demand and heightened competition. Its latest move to launch a new detergent brand in three decades is a bid to sharpen its competitive edge on its turf, especially during the slowdown.

Despite the current slowdown in demand, the HUL stock seems to be the best-placed consumer goods stock given its track record of posting consistent growth irrespective of the economic environment. Data from Bloomberg shows that more than 40% of the analysts tracking the stock have a buy recommendation on it, with a target price that is 11% higher. The stock commands premium valuations of 60 times its FY19 earnings. The price is trading around the year-ago levels.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/personal-care-pet-supplies-liquor/hul-may-not-buck-slowdown-but-stocks-still-top-fmcg-play/70338816