CLSA sees sharp business recovery in Hindustan Unilever

Mumbai: Fast moving consumer goods major remains a preferred pick of CLSA amid prospect of a sharp business recovery, nutrition integration and easing of raw material prices. The brokerage has retained buy recommendation with a target price of Rs 2,900.

“…we see a progressively improving outlook for HUL with the prospect of sharp business recovery, particularly with mix change in favour of OOH (out-of-home), skincare, its premium portfolio, easing of commodity prices, recent sharp price hikes and integration benefits in its nutrition portfolio. HUL remains a preferred pick,” said CLSA. The brokerage said Hindustan Unilever’s strategic call to pursue market share along with commodity price inflation, impact of the second wave of COVID-19 and integration challenges should keep volume growth for the first quarter of FY22 muted at 9%.

“Inflation is likely to affect the margin profile in 1HFY21(first half of FY21), given its high-cost inventory position. Palm oil and tea prices have started to ease; we expect effects will be visible from 3Q onwards,” said CLSA.

The brokerage said Hindustan Unilever has used the pandemic and inflationary setting to its advantage, with initiatives like rapid distribution in rural markets, digitising general trade, and gaining access to the pharmacy channel likely to drive long-term share gains. Easing of raw materials should aid portfolio up-trading, said CLSA.

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