HUL scales a new mount, price hike comes to the rescue

Hindustan Unilever touched a new all-time high of Rs 354.80 on Thursday as analysts continue to recommend the company as a strong investment bet. The stock has moved up by nearly 10 percent over the last seven trading days, from Rs 320 to Rs 354.80. By the end of the day on Thursday, the stock had retreated to the Rs 350.70 level.

Ever since the company announced a spate of price hikes for its various products, Hindustan Unilever has been on a steady wicket. The prices for its products like Surf Excel, Dove Shampoo, Pears, Rin, Wheel and Bru mostly ranged from 1 percent to 12 percent. The price hike was necessitated by a sharp hike in raw material costs. Hindustan Unilever increased prices after it was unable to absorb cost increases any further.

[caption id=“attachment_84927” align=“alignleft” width=“380” caption=“The company has increased prices of its products like Surf Excel, Dove Shampoo, Pears, Rin, Wheel and Bru. AFP”] [/caption]

Marico, another company in the consumer segment, has in a recent release said that its performance in the domestic market might be affected as a result of higher raw material costs. Marico has increased prices 32 percent since January 2011. The FMCG sector as a whole has been affected after Marico issued the profit warning. The sector lost 0.32 percent on Thursday, with Marico falling over 10 percent and Hindustan Unilever 0.54 percent.

Apart from price increases, the company has also gone for re-launch of some of its existing products like Fair & Lovely Face Wash, Pond’s Gold Radiance, Ivana Men Saloon, Bru Exotica and Pureit Intella.

Hindustan Unilever has benefited after a shift in its strategy from “preserving margins” to “profitable volume growth”. The company’s volume has grown between 8 percent to 14 percent over the past six quarters. Their reach in the rural space, growth in personal care segment and an aggressive policy on new products have all helped the company set high-volume targets.

Though the company is trading at 26 times its financial year 2012 profits, analysts continue to remain bullish on the counter as this represents average valuation over the last five years. Being an exclusive domestic player, the company is not affected by the turmoil in global markets.