The Hindustan Unilever (HUL) share was under pressure on Friday as the FMCG giant reported a 23% fall in the net profit at R1,019.25 crore for the first quarter ended June 30. The stock declined 3.4% to close at R663 as a lacklustre 4% growth in volumes further spooked investors. The volume growth in the previous quarter stood at 6% and the Street was expecting a number close to that in the current quarter as well.
While consumer spending is turning sluggish due to the slowdown, analysts were expecting better numbers from the second-largest FMCG player by market capitalisation. “The volume growth figures are especially disappointing. Apart from this, the major concern is that the profit growth in the personal products category has been negative. The category is seen as a stable source of income and had so far been consistently showing positive growth. The Ebitda has also missed estimates by 4-5%,” said Ritwik Rai, analyst, FMCG sector, Kotak Securities.
HUL reported a 12% y-o-y rise in Ebitda to R1,086 crore and a 70-bps improvement in its operating profit margin at 15.9%. HUL’s net sales increased 6.99% y-o-y to R6,687.49 crore.
According to market observers, HUL’s fall was partly triggered by overvaluation as the stock is trading at a one year forward price-to-earnings ratio of 36.35 times. Reports that LIC has also sold a large chunk of shares may have also impacted sentiment. “The stock is seeing a correction. Also, the counter was reacting to selling by an institutional investor on the previous day. The sector should benefit from good monsoons as it would bring down costs of raw materials. Policy changes like Food Security Bill would drive up consumption in rural areas and boost sales of FMCG companies,” said Alex Mathews, head (research), Geojit BNP Paribas Financial Services.
The counter saw a turnover of R104.20 crore on the BSE and R579 crore on the NSE on Friday. HUL shed nearly 5% this week, although the stock is still up 26.42% YTD.
Market experts feel that the slowdown in the economy is also hurting the sector. “Spending power remains subdued as income levels have not seen any major change. Consumer spending would not pick up pace till the economic slowdown continues,” Rai added. The BSE FMCG index slipped 2% during the week.