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business | IST

Hindustan Unilever has strong pricing power, positive on stock: Edelweiss Securities’ Abneesh Roy

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FMCG majors ITC and Hindustan Unilever taking price hikes of between three percent and 21 percent. CNBC-TV18 reported in September that HUL had hiked its prices by 3-15 percent. Abneesh Roy of Edelweiss Securities believes HUL's latest price hike is a positive step for it.

After biscuits, detergent and soaps are also getting more expensive. CNBC-TV18 learned that FMCG majors ITC Ltd and Hindustan Unilever Ltd (HUL) are taking price hikes to the tune of 3-21 percent. CNBC-TV18 reported in September that HUL had hiked its prices by 3-15 percent.
Abneesh Roy, ED-Institutional Equities at Edelweiss Securities, believes it is a positive step for HUL. "HUL will take staggered price hikes. In different parts of the country and different stock keeping units, the pricing will happen in a staggered manner," he told CNBC-TV18.
"I do expect that this is a further price hike and we will get more clarity on the quantum from the company. But we have also picked up is that there have been price hikes in soaps and detergents in many parts of the country and many SKUs.”
This shows the strong pricing power of the company, said Roy, who is "quite positive" on HUL and expects it to perform well going forward.
"The stock has corrected around 20 percent in the broader market sell-off, but what works for Hindustan Unilever are essentially three things. One, out-of-home consumption is going to come back. We have seen the offices etc. doing quite well. There is supposed to be a harsh winter this time and whenever that happens, HUL's skin creams do quite well. This latest price hike also should aid the margins.”
Speaking on growth triggers for the company, he said HUL is going for balanced and measured growth.
"What will be a trigger for the stock from here on will be any rural Nielsen data because that was a key dampener for investors. In Q2, HUL highlighted the Nielsen data is pointing towards some rural slowdown. But other companies are also saying that rural growth is not a structural issue. It is more of a transitory because of base effects and the government is taking a lot of steps in terms of augmenting the consumption,” he said.
Roy believes the stock to be in oversold territory. FMCG is a sector with a high pricing power and high productivity earnings, and the worst in terms of gross and EBITDA margins may be behind in 1-2 quarters.
He expects the company to see more of price growth and less volume growth in the near term. "But what works for the volume growth is out-of-home consumption coming back... and winter being quite good... On a net-net basis, some impact will be there. But I think overall, every player is taking price hikes so the consumer doesn't have much of a choice.”
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