Two brokerages have revised down Hindustan Unilever Ltd's (HUL) earnings per share (EPS) estimates by up to 3% following the company's second-quarter financial results. While HUL exceeded street expectations for the second quarter, concerns have arisen due to sluggish consumer demand and HUL's lag behind industry growth.

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HUL's shares fell by up to 2% in opening trade, marking the biggest decline among Sensex and Nifty50 shares. The stock was the lead loser among Nifty50 shares, dropping by 1.89% to ₹2,500 apiece.

Jefferies

Jefferies, in a report, assigned a 'Hold' rating on HUL shares with a target price of ₹2,720 per share, implying a potential upside of 7% from Thursday's close. They downgraded their EPS estimate for HUL by 3-4%, citing below-industry-average growth.

Jefferies highlighted that the impact of lower input cost inflation was evident in Q2 results, with a sharp improvement in gross margin. However, increased competitive activity led to higher media spending. HUL is trailing industry growth, and lower product prices haven't significantly boosted consumption.

Nuvama

Another brokerage, Nuvama, downgraded EPS estimates by 2% for FY24/FY25E each and recommended a revised target price of ₹3,210 per share, compared to the earlier ₹3,280. This revised target price suggests a potential upside of 25%, down from the previous 28% from current levels.

Nuvama pointed out that HUL's operating profit and profit after tax (PAT) growth exceeded street estimates. However, revenue growth was slightly lower than expected, with volume growth at 2% YoY. Despite challenges, HUL reported an increase in standalone net profit and sales in Q2FY24.

“Volumes grew 2% YoY, lower than our and street estimate of 3-4%. Gross margin expanded 702 basis points YoY/ 277bps QoQ to 51.9% (highest since Q4FY22),” Nuvama stated.

It also stated that volume growth is likely to be gradual for HUL. There is huge room for growth in the FMCG market in India. To put it in perspective, if India consumes x, Indonesia consumes 4x, the Philippines 5x, China 5x and Thailand 7x, it said.

High milk prices not only increase the cost of production for HFD products but also reduce consumption as HFD products are consumed with milk.

HUL on Thursday reported a 3.86% year-on-year increase in standalone net profit to ₹2,717 crore for the September quarter. Sales rose 3.53% YoY to ₹15,027 crore in Q2 of FY24 from ₹14,514 crore a year ago.

On the HUL Q2 results, Nuvama said that home care (HC) grew 3% on a very high base. BPC turned in volume-led growth of 4% YoY.

Foods & refreshment (F&R) delivered pricing-led growth of 4%. HC and BPC volumes grew in mid-single digits each, while F&R witnessed a mid-single-digit decline.

(Edited by : Akanksha Upadhyay)