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Analysts are increasingly turning bearish on Hindustan Unilever after the stock rallied a strong 8% over the last two weeks. We believe that given the benign consumer sentiment the stock is trading at high valuations. Bearish on the company as he believes input cost inflation alongside weak consumer sentiment poses downside risk to its gross margin. Earnings performance of HUL is in low quartile of FMCG sector, whereas valuation is in top quartile. On the other hand, valuation has remained firm as there is wide expectation that the parent may hike stake, and eventually de-list the company. Currently, Hindustan Unilever trades at about 30 times its 2014-15 (Apr-Mar) earnings per share.
On the other hand, we believe that home-grown fast-moving consumer goods major Marico is likely to outperform in the near future despite a near 85% surge in the price of its key raw material copra over the last one year. When copra prices rise all the other players suffer more, the smaller players loose market stock and have a problem in maintaining margins. Marico has taken sufficient price hikes to factor in higher copra prices.
Analysts are increasingly turning bearish on Hindustan Unilever after the stock rallied a strong 8% over the last two weeks. We believe that given the benign consumer sentiment the stock is trading at high valuations. Bearish on the company as he believes input cost inflation alongside weak consumer sentiment poses downside risk to its gross margin. Earnings performance of HUL is in low quartile of FMCG sector, whereas valuation is in top quartile. On the other hand, valuation has remained firm as there is wide expectation that the parent may hike stake, and eventually de-list the company. Currently, Hindustan Unilever trades at about 30 times its 2014-15 (Apr-Mar) earnings per share.
On the other hand, we believe that home-grown fast-moving consumer goods major Marico is likely to outperform in the near future despite a near 85% surge in the price of its key raw material copra over the last one year. When copra prices rise all the other players suffer more, the smaller players loose market stock and have a problem in maintaining margins. Marico has taken sufficient price hikes to factor in higher copra prices.
