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HUL: Given the context of no significant signs of rural recovery and key commodities still above pre-Covid levels.
Hindustan Unilever (HUL) disappointed Dalal Street with its muted quarterly results in March. The operating environment remains challenging for the FMCG major and that recent price cuts in its detergent, soap and BPC portfolio and higher royalties could weigh on its future margins. There is no sign of a rural recovery as the volume of the rural FMCG market continues to decline, but the premium portfolio for HUL continued to outperform with market share gains in the equation but still expects that gross margins will improve despite a likely increase in media spending. We remain cautiously optimistic and expect mid-single-digit volume growth as the near-term operating environment remains challenging. In light of price cuts and an increase in the royalty rate to 3.45%, we have cut our revenue and maintain the ADD rating with a revised target of Rs 2703. An expansion in BPC EBIT margin, up 95 basis points sequentially. helped by the softening of palm oil prices. With no significant signs of rural recovery and key commodities still above pre-crisis levels, The outlook for staple food companies remains neutral. But HUL will likely fare better than the competition as the importance for products in the fattening market is relatively lower compared to its peers. In the nutrition portfolio, the path to a significant course change is not yet visible.
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