The Hindu Business Line : Hindustan Unilever survives market scare

Kolkata, July 29 In a falling market, Hindustan Unilever moved up around 3 per cent on decent buying. According to market analysts, investors bought the shares as a defensive bet. According to Mr Ramdeo Agarwal of Motilal Oswal, the stock did not appreciate much of late and it would not be surprising if a good quarterly result prompted some players to accumulate the stock.

For the past three quarters, HUL has managed to deliver a brilliant top line growth with a good volume growth, despite a continuous increase in the prices of its products to offset the input cost inflation. However, its overall margin has remained under pressure.

Price Hikes

Sharekhan believes the growth, seen in the last nine months, was achieved on the back of a low base and expects the company to enjoy the benefit of a low base for another quarter (Q3-CY2008). “The third quarter of CY2008 will also see the full impact of the price hikes given effect in Q2-CY2008. However, after that, the growth rate might taper off on account of a higher base.”

On an overall basis, the raw material and advertising & promotion costs as percentages of sales increased by 43 basis points and 75 basis points respectively. The staff cost also went up by 25.2 per cent year-on-year during the first quarter to June 30, Sharekan estimated. All these factors led the operating profit margin (OPM) to fall by 132 basis points to 13.1 per cent in Q2-CY2008. A 55.7 per cent jump in the other income to Rs 164.7 crore from Rs 105.8 crore in Q2-CY2007 helped the adjusted profit after tax (PAT) to increase by 18.2 per cent year-on-year to Rs 543.9 crore.

Rate sensitive

According to Mr Amitabh Chakraborty of Religare, clearly the stock provided to be a defensive bet in a market when money was being taken off the table, particularly from the interest rate sensitive sectors. Analysts were of the opinion that fundamentals were behind today’s movement in the FMCG player than anything else.

Mr Ajay Jaiswal of Microsec felt that a steady gain since the RBI announcement of credit policy on Tuesday suggested that a section of market players opted for buying into the stock as defensive mechanism. High delivery level also indicated actual buying rather than day-trading activity. He also felt that short covering was not the trigger for Hindustan Unilever.

Mr V.K. Sharma of Anagram Securities said that in a situation of portfolio churning, the stock was preferred as relatively safe for immediate perking of funds.

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