ITC shares have outperformed HUL this year. ITC’s stock has gained 20 per cent so far in 2022. HUL’s stock has slipped 8 per cent during this period. The BSE Sensex and Nifty 50 have gained 1.5 per cent. The BSE FMCG Index has gained 1 per cent. Let us know what is the reason for the weak performance of HUL shares.
Impact of slowdown in rural market on performance
Analysts say that the main reason for the weakness in the shares of Hindustan Unilever could be the slowdown in the rural market. Due to this the sales volume has decreased. This has been seen from the third quarter of the financial year 2021-22. Besides, rising input costs have also impacted the company’s ability to make profits in the last two quarters.
HUL’s sales volume may decline in the fourth quarter
Brokerage firm Sharekhan has reported that consumers are preferring to buy low price units. They are cutting non-essential expenses. The reason for this is rising inflation and slowdown in the rural market. Sharekhan expects Hindustan Unilever’s sales volume to decline in the fourth quarter. However, the company has increased the prices of almost all its products. Due to this, its revenue may see some growth in the fourth quarter.
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HUL has increased the prices of products by 2 to 13% percent
Hindustan Unilever executives had earlier indicated that rising input costs such as crude oil and palm oil would put pressure on the company’s gross margins in the fourth quarter. The company has increased the prices of its products by 2 to 13 percent. This will help offset the impact of increase in input cost in the fourth quarter.
Rise in commodity prices will reduce profit margin
Commodity prices jump after Russia’s attack on Ukraine. Sharekhan has said that this will reduce the operating profit margin in the first quarter of the next financial year. It anticipates a sharp fall in margins in the first half of this fiscal. If commodity prices soften, the situation may improve in the second half.
Less impact of slowdown on ITC’s business
Analysts say that the slowdown in rural areas has less impact on ITC. This is because it has mostly food items in its portfolio. The core business of the company is completely protected from the risk of inflation. With the revival of volume growth in the cigarette market, ITC may surprise its profits in FY 2022-23.
ITC to benefit from increase in cigarette sales volume
ITC is one of the largest consumer companies in the country. Its business includes cigarettes, hotels, paper and even agri commodities. The performance of its branded food division is very good. This includes staples, confectionery, noodles, snacks and biscuits. Edelweiss Wealth Research has said, “Its cigarette volumes will have a CAGR of 5 per cent during the financial years 2021-22 to 2023-24.”
ITC stock can give 80 per cent profit
Edelweiss has given a target price of Rs 450 for the ITC share. This is nearly 80 per cent higher than the current market price of the stock. On Thursday, the stock of ITC closed at Rs 256.70, up 1.1 per cent. HUL’s stock closed at Rs 2,170, up 1.3 per cent.