Sunday, March 29, 2009

Stock Idea: Hindustan Unilever Ltd (HUL)

FMCG stocks faced meltdown some days ago and this was after foreign brokerage JPMorgan Chase & Company cut rating on the stock to 'underweight' from 'neutral', citing weakening growth and increasing competition. But since then it has recovered remarkably.

Hindustan Unilever Ltd (HUL) remains a hot favourite on the bourses. The company, to a large extent has managed to beat the slowdown blues, and it has stated all along that buying in rural India is what gives it an edge. The company has extended its accounting year to a 15-months period from Dec to March, so this fiscal, HUL will have a 15 month period. It declared its Q4 performance for the period ended 31st Dec 2008 Net sales grew by 16.8% during the quarter. FMCG sales grew by 21.2% with a 20.8% growth in HPC and 23.5% growth in Foods businesses. PAT for the quarter was at Rs. 612.26 crore, up 12.7 %.

In the current quarter, the company is expected to have higher volumes and better margins as it will reap the benefits of the lower costs. Following the excise duty cuts and the fall in raw material prices like such as palm oil, LAB and HDPE; HUL reduced prices of its products and increased the grammage in select stock keeping units (SKUs) towards the end of January 2009. This is done mainly in its soaps and detergents segment, which is one of its biggest revenue earners.

There is no doubt the company is facing stiff competition from other FMCG brands and has been steadily losing its market share. Hopefully, the price reduction would help the company regain some of its lost market share. In the coming months, cost control and improving volumes would be the biggest priority. Profit margins are expected to grow more due to the fall in the raw material costs. Hopefully, the current tightening of the purse strings would soon get loosened, meaning more buying for HUL’s products. The company is expected to maintain its growth in the coming months.

The stock hit a new high at Rs.271 on 5th Feb 2009 and it continues to hover near the highs. Clearly, the stock continues to remain high on the buyers list.

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