HUL Q2 Updates: Poor Results On Cards Despite GST Cuts? Here's What Brokerages Are Saying
Almost half of HUL's products, including soaps, shampoos and packaged foods, now come under the 5% GST bracket, down from 12% to 18%. The company, though, expects the drag to continue until October.
Brokerages acknowledged Hindustan Unilever Ltd.'s update ahead of earnings season, which hints at a poor September quarter and near-term pain, even after the implementation of Goods & Services Tax (GST) reforms.
Over the weekend, HUL said GST 2.0, which was implemented on Sept. 22, has disrupted ordering as consumers have delayed purchases in order to wait for new pantry prices. This has led to distributors failing to clear old inventories, leading to “near flat to low single-digit” revenue growth for the September quarter.
Almost half of HUL's products, including soaps, shampoos and packaged foods, now come under the 5% GST bracket, down from 12% to 18%. The company, though, expects the drag to continue until October.
What Are Brokerages Saying About HUL?
BofA Securities has kept a 'neutral' rating on HUL, with an unchanged target price of Rs 2,840. The brokerage firm highlighted the temporary delays of the GST transition in September and October.
The firm expects growth for HUL to pick up during the second half of the ongoing fiscal year while noting that July-August trends were similar.
BofA added that September's destocking and trade discounts would weigh on numbers as well.
Jefferies maintained a 'buy' call on HUL with an unchanged target price of Rs 3,000. The firm believes that GST cuts are positive for long-term demand but acknowledged flat-to-low single-digit revenue growth in the second quarter.
Jefferies expects the drag to continue until October as existing inventory gets cleared. However, it expects demand to rebound from November and a "much better" third quarter.
The brokerage firm expects a similar impact for other fast-moving consumer goods companies as well, while noting that revenue growth may be negative for retailers, including quick-commerce outlets.
Finally, Morgan Stanley reiterated an 'equal-weight' rating on HUL, with an unchanged target price of Rs 2,335, calling the company's note on Q2 update 'below market expectations'.
The firm cited consumer delays in spending, but did note that issuing a quarterly update is a good change for the company.
