Hindustan Unilever's upgrade to 'Buy' by CLSA signals rural market recovery

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Hindustan Unilever's upgrade to 'Buy' by CLSA signals rural market recovery
Credit: © Reuters.

Research firm CLSA upgraded Hindustan Unilever (LON: ULVR ) Ltd. (HUL) to a 'Buy' rating on Tuesday, buoyed by factors such as reasonable valuations, reduced competition, and an expected surge in rural demand following black-swan events. The firm also increased HUL's target price to ₹3,135, suggesting a 27% upside return potential.

Rural areas contribute approximately 40% of HUL's revenue. A recovery in these regions is anticipated due to increased spending anticipated in the second half of FY24 and a robust rabi crop following August rains. This rural market resurgence is a significant factor for HUL's positive outlook, given its substantial revenue share from these areas.

Despite challenges such as loss of market share in skincare and stagnant growth in health food drinks, optimism prevails due to diminished competition from direct-to-consumer (D2C) players and ongoing efforts in health food drinks market development.

On Tuesday, HUL shares traded higher than the NSE Nifty 50 . Bloomberg data indicates a 15.5% upside based on the average 12-month consensus price target. This upward trend aligns with CLSA's upgraded rating and increased target price, further solidifying the positive sentiment surrounding HUL's stock performance.

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