Shares of Hindustan Unilever Ltd on Thursday gained 4.5 per cent after the FMCG major reported better-than-expected consolidated net profit for the fourth quarter ended March 2022.

Most analysts, though bullish on the stock, expect HUL to face short-term margin pressure due to inflationary pressures.

Market-cap zooms

“Two factors that constrained HUL’s earnings growth (ex-GSK) over the past two years were escalating material costs and lower-than-expected premiumisation. Both these factors are likely to inhibit the company’s 1HFY23E earnings as well,” said Motilal Oswal Financial.

The stock closed at ₹2,241.80 on the BSE and market-cap rose nearly ₹2.3 lakh crore to ₹5.26 lakh crore.

‘Management control’

"Given the external environment (demand weakness plus elevated input-costs pressure), the fact that HUL was able to deliver the kind of earnings-report that it did for 4QFY22 speaks a lot about the sort of control and grasp that the management has on its businesses, and consequently on the overall shape of its financials," said JM Financials..

The company posted a 5.34 per cent increase in its consolidated net profit to ₹2,307 crore for the fourth quarter ended March 2022, despite flat volume growth due to unprecedented inflation. "During the quarter, our turnover grew 10 per cent with flat underlying volume growth. We continued to grow significantly ahead of the market, gaining value and volume market shares," the company said in a statement while declaring its financial performance.

Gradual recovery seen

Centrum Broking, which retained Add rating with a revised target price of ₹ 2,303 said, We expect gradual recovery in discretionary spends and inherent distribution strength to drive GSK-CH business. Margins could remain in tight range, given inflationary cycle and high ad-spends."

Another domestic brokerage Prabhudas Lilladher said, “We remain positive on the longer-term structural story given: sustained market share gains; strong innovation pipeline; scale-up in emerging categories (green tea, fabric conditioner, liquid detergents, liquid dishwash, hair conditioner); distribution gains from strategies such as WIMI and Shikhar; and faster growth in premium portfolio (2x than company growth).”

However, HDFC Securities has maintained its “Reduce” rating on HUL with a price target of ₹2,000. The broking firm said: “With ongoing demand disruptions in mass segments and structural pressures from new-age brands in the premium space (as highlighted in our recent thematic), we see limited surprise opportunities for HUL.”

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