Fast-moving consumer goods companies saw a sharp sell-off on Thursday, as earnings of Hindustan Unilever (HUL), the largest in the segment in the country, left investors disappointed.
HUL closed 5.8 per cent lower at Rs 2,502.95 on the BSE, a day after the maker of Surf detergent and Bru coffee reported a 4 per cent year-on-year drop in standalone second-quarter net profit. Its revenue also rose only 2 per cent, with company officials stressing moderating growth in urban markets. Earlier, Nestle India and Tata Consumer Products too had pointed to consumer spending woes in urban areas.
Against this backdrop, investors seemed to have lost some appetite for FMCG companies. On Thursday, Dabur, Godrej Consumer, Nestle, Hatsun, Colgate Palmolive, Varun Beverages, Marico, Emami and Heritage Foods among others declined 2-5 per cent. The BSE Sensex ended flattish, down 17 points or 0.02 per cent.
HUL has declined a little over 15 per cent over the past one month, compared with a 5.7 per cent decline in the Sensex.
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"While rural market is seeing a gradual recovery, moderation in urban (also voiced by Nestle and Tata Consumer) has come as a negative surprise," noted Mehul Desai of JM Financial Institutional Securities.
HUL, in particular, saw volumes de-grow in low-single digits in foods and refreshments as well as personal care segments.
"Demand environment is unlikely to see acceleration as gradual recovery in rural is offset by moderation seen in urban market (primarily in large cities)," said Desai.
In the backdrop of the weak growth in the July-September quarter earnings, analysts have cut their earnings estimates for HUL by 2 per cent to 4 per cent. However, not all is negative, said some analysts.
"The portfolio (home care, and beauty and wellbeing) that represents three-fifth of the sales and two-thirds of the EBIT (earnings before interest and taxes) is in good health, with topline growth in a high single-digit and margin expansion," noted Nitin Gupta of Emkay Global Financial Services.
The recent correction in the stock factors in the near-term slowdown, he said.
Naveen Trivedi of Motilal Oswal Financial Services also pointed to the 7-8 per cent underlying growth in the core home care, beauty and wellbeing portfolio and opined out that with macro improvements, HUL can see "volume acceleration" in the ensuing quarters. The price hikes that the company is taking to offset inflation in certain segments, should also support revenue growth, he added.