Shares of Hindustan Unilever (HUL) hit a new high of Rs 2,875, gaining 1 per cent on the BSE in Monday’s intra-day trade in an otherwise weak market after the fast moving consumer goods (FMCG) giant on Friday decided to constitute a committee of independent directors to evaluate the prospects of the company’s ice cream business. In comparison, the BSE Sensex was down 0.24 per cent at 80,986 at 09:32 am.
HUL in an exchange filing said, the Board of Directors of the company at its meeting held on Friday, September 6, discussed the way forward for its ice cream business. This follows the announcement, earlier this year, by the company’s parent entity, Unilever PLC, about its intention to separate its global Ice Cream business across jurisdictions, the company said.
After due consideration, the Board has decided to constitute a committee of Independent Directors of the Company (Independent Committee) to evaluate in detail the prospects of the Company’s Ice Cream business and to make recommendations to the Board, HUL said.
The Board also accorded its approval to explore potential structures and alternatives for the same. Based on the recommendation of the Independent Committee, the matter will be placed for final consideration of the Audit Committee and the Board at their respective meetings to be scheduled in due course, the company said.
Meanwhile, HUL in its annual report said, in FY 2023-24, the FMCG industry witnessed a challenging year due to weather vagaries impacting agricultural output and consumer sentiment. As a result of this, while the industry witnessed sequential easing of inflation, volumes have been recovering gradually albeit readjusting with a lag. Three continuous years of sustained inflation prior to FY 2023-24 has impacted disposable income, especially in rural areas. This has resulted in a slower pace of recovery in rural and mass segments while urban and premium segments have been resilient.
However, analysts at Motilal Oswal Financial Services model volume growth acceleration in FY25, driven by own initiatives and improvement in demand trends. Revenue growth is expected to improve to high single-digits in 2HFY25, driven by growth in volume and prices. With an improving earnings trajectory, the brokerage firm continues to expect valuation re-rating.
On profitability front, with absence of pricing lever (expects low single digit growth in H2) & adjusting for one-off benefit in Q2FY24, earnings before interest, tax, depreciation and amortization (EBITDA) margin is likely to remain flattish on yoy basis for FY25E, analysts at JM Financial Institutional Securities said in the June quarter result update.
However, over medium term, management expects modest improvement in EBITDA margin led by benefit of operating leverage, mix improvement and extracting synergies from Horlicks portfolio. Further rerating will be contingent on better visibility on volume acceleration & double-digit earnings growth, the brokerage firm said.
In the past six months, HUL has outperformed the market by surging 21 per cent, as compared to 10.5 per cent rise in the BSE Sensex.
The article originally appeared on Business Standard.