See HUL clocking around 6% volume growth this quarter: Sanjay Manyal, ICICI Securities

In a chat with ET Now, Sanjay Manyal, Research analyst, ICICI Securities, shares his outlook for the FMCG stocks with special focus on HUL. Excerpts:

ET Now: Are you surprised with the kind of move that HUL has shown since the start of 2015?

Sanjay Manyal: It is certainly surprising. HUL is one of the most expensive stocks in the FMCG universe. It has become still more expensive after this run-up.

We were expecting some margin improvement for HUL in this quarter and the next, owing to the commodity price crash. But the kind of run-up it has had is truly surprising.

ET Now: What is to be watched out for in this quarter? What would you specifically want to hear in terms of commentary from the HUL management?

Sanjay Manyal: We want to know about the volume growth because of the low base effect of last quarter and the steady revival in the urban discretionary demand. We are expecting approximately 6% volume growth this quarter, which is higher than the last three-four quarters.

We want to see how margins pan out this quarter. We are expecting major benefits to come through post the commodity price fall. We are expecting approximately 17.7% kind of an operating margin for this quarter.

ET Now: If the numbers do come as expected, what to your mind would be HUL’s stock price like? Would you look to re-rate the stock, given the run-up it's already had?

Sanjay Manyal: I do not think we want to go ahead with a 'buy' for HUL at this point. It has been an expensive stock, and the run-up has made it even more so. So, fresh buying at this point would make us uncomfortable.

We had a 755 kind of a target for it, which we may now revise upwards. But we will certainly not recommend a buy at this point in time.

ET Now: What is your top idea in the FMCG space currently?

Sanjay Manyal: At present we are very positive on Marico. It has seen a steady volume growth over the last two-three quarters. There has been almost a 15%-20% drop in copra prices in the last quarter. We believe Marico will be a major beneficiary of it.

We will see the benefits coming through in this quarter and the next. Compared to other FMCG stocks, Marico is relatively cheaper in terms of valuation multiples. So, we are positive on the stock.