Hindustan Unilever declines 6% on disappointing March quarter results

The Street had factored in a drop of 2-4 per cent in Q4 volume growth on account of the Covid-19 outbreak and subsequent lockdown.
Shares of Hindustan Unilever skid 6 per cent to Rs 2,075 on the BSE on Monday after the consumer goods firm reported disappointing set of numbers for the quarter ended March 2020 (Q4FY20) on the back of the Covid-19 crisis.

The stock of the fast moving consumer goods (FMCG) giant was down for the fourth straight trading day, falling 11 per cent during the period, as compared to a nearly 1 per cent rise in the S&P BSE Sensex. With today’s fall, HUL has corrected 21 per cent from its record high level of Rs 2,614, touched on April 8, 2020.

HUL, the country’s largest consumer goods company, on Thursday reported a 7 per cent decline in volumes for Q4FY20, faring even worse than the demonetisation quarter (October-December 2016), when the fall was 4 per cent. The Street had factored in a drop of 2-4 per cent in Q4 volume growth on account of the Covid-19 outbreak and subsequent lockdown.

While the management cited weak operating trends even before the lockdown, part of the impact was due to supply chain disruption, which has now reversed to some extent.

HUL’s profit before tax fell 10.6 per cent to Rs 1,992 crore for the period, while net profit declined 1.2 per cent year-on-year (YoY) to Rs 1,519 crore in Q4, as against a consensus estimate of Rs 1,821 crore. The company’s revenue was down 9.4 per cent to Rs 9,011 crore, as against the Rs 10,103-crore consensus estimate of analysts polled by Bloomberg.

The brokerages, however, firm maintain their buy/hold rating on the stock, as they expect HUL to be key beneficiary of the rural demand recovery.

Although Covid-19 related lockdown will affect near-term volumes, analysts at Edelweiss Research expect volumes and earnings to bounce back once things normalize.

“The unprecedented turn of events and its negative impact on supply chain & discretionary products demand is expected to result in a revenue decline (comparable) in FY21E. However, we believe the company has many levers to protect its margins and propel growth once the situation comes back to normal. HUL remains one of our preferred plays in the consumption space with its ability to weather the storm,” analysts at ICICI Securities said in result update.

Motilal Oswal Securities, on the other hand, has cut HUL’s FY21/FY22E EPS estimates by 9 per cent/4.2 per cent due to poor results and weak April-June quarter (Q1FY21) outlook. However, restoration of supply chain to 75-80 per cent of normal levels in the last 10 days despite the ongoing lockdown is remarkable, and yet again demonstrates HUL’s efficiency well ahead of peers. It is also notable that HUL gained share in 80 per cent of its portfolio despite the unprecedented disruption in the quarter, the brokerage firm said in result update.

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