On Thursday, Hindustan Unilever Ltd said that its consolidated net profit for the third quarter that ended on December 31, 2022, went up by 7.9% to 2,481 crore. In the October-December quarter of the previous fiscal year, the company made a net profit of 2,300 crore. Its board has now approved a new royalty and central services arrangement with Unilever Group, which will raise the fees for the same to 3.45% of turnover from 2.65% in FY22.

At the conference call, HUL made it clear that it would get the necessary regulatory approvals for a royalty hike (80bps over 3Y). “Management said that the increase was necessary because HUL was getting more out of it, and a detailed study and benchmarking were done to come up with the new rates. From our conversations with people in the industry, we know that HUL will probably need approval from minority shareholders. Overall, the 3rd quarter was about the same, but volume growth was better than expected and home care continued to do better than expected,” said Jefferies.

Regarding the new royalty and central services agreement with the Unilever group, HUL said that this increase will happen in stages over the next three years. This deal depends on getting the right permissions from the government.

Stock Alert 🔔

HUL Q3:
Net profit rises 12% to Rs 2,505 cr
Revenue reises 16 % to Rs 15,228 crore

🚨 Increases Unilever royalty
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In the third quarter, there were signs of improvement in rural areas, and demand is likely to have reached its lowest point. HUL thinks that demand will pick up as inflation slowly goes down, and management is still cautiously optimistic. The worst of inflation is probably over, but some inputs are still high and the GM recovery is likely to be slow, according to Jefferies, which has kept its BUY rating on FMCG stock but lowered its target price to 3,100.

Analysts at Edelweiss think that HUL will continue to grow faster than the market as a whole. With net material inflation going down, margin profile is likely to keep getting better in Q4. It has also kept its Buy rating on HUL shares, which gives a target price of 3,365 (it was 3,140 before).

“Royalty spoils a great show. The increase in royalties is bad, but it’s happening when the worst of RM inflation is over. “Edelweiss pointed out that RCS’s new cost, which is 3.45% of sales, is made up of 1.95% in royalties for trademarks and technologies and 1.5% in central services from Unilever.

The post What does a rise in royalties mean for the HUL stock? Here’s what brokerages think will happen after Q3: appeared first on Republic Aeon.