HUL shares: What royalty hike means for the FMCG stock? Here’s what brokerages suggest post Q3

At the concall, HUL clarified that requisite regulatory approvals will be taken for royalty hike (80bps over 3Y). “Management justified the increase based on benefits enjoyed by HUL and a detailed study & benchmarking was done to arrive at the revised rates. Our industry interactions indicate HUL will likely need an approval from minority shareholders. Overall 3Q was in-line although volume growth was ahead and home-care continues to outperform,” highlighted Jefferies.

On the new royalty and central services arrangement with Unilever group, HUL said this increase will be effected in a staggered manner over a period of 3 years. This arrangement is subject to appropriate regulatory approvals.

Rural saw signs of improvement in 3Q, with demand likely bottoming out. HUL expects demand to recover as inflation moderates gradually and mgmt. remains cautiously optimistic. Worst of inflation is likely behind, although some inputs still remain elevated and GM recovery is likely to be gradual, as per Jefferies which has maintained its BUY rating on the FMCG stock with revised target price of ₹3,100.

Analysts at Edelweiss expect HUL to continue growing ahead of the market. With easing net material inflation, margin profile is expected to continue to improve in Q4 as well. It also has retained its Buy tag on HUL shares, yielding a target price of ₹3,365 (earlier ₹3,140).

“Royalty mars a splendid show. Royalty increase is a negative but coming at a time when worst of RM Inflation is behind. RCS’ revised cost, 3.45% of turnover, comprises of 1.95% towards royalty for trademark/tech and 1.5% towards central services from Unilever,” Edelweiss highlighted.

The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.