Hindustan Unilever (HUL), India's largest fast moving consumer goods (FMCG) maker has witnessed a spectacular run over the last week and including Monday's gains the stock is up over 18 per cent to a 52-week high of Rs 897.40.
For a stock like HUL, which has a free float market capitalization of over Rs 65,000 crore, an 18 per cent move in a single week is very significant. In the futures segment, the stock has witnessed over 30 per cent increase in its open interest to 63.85 lakh shares over last two trading sessions till Friday. Increase in open interest along with increase in price indicates addition of long position.
Increase in bullish bets in HUL ahead of its December quarter earnings on January 19 signals investors are optimistic about its financial results.
Analysts say HUL is likely to report strong margins because of the correction in crude and other raw material prices. Crude prices have crashed by 50 per cent. Analysts say HUL has around 35 per cent exposure to crude derivatives. Also prices of palm oil, which is used to make soaps, has corrected nearly 20 per cent last year.
According to some traders, speculation of another open offer by HUL's Anglo-Dutch parent Unilever is driving HUL shares higher. Unilever, which held 67.23 per cent stake in HUL as of December 31, 2014, last came out with an open offer in July 2013.
"There could be a rumour of open offer, but the gains have been driven by lower raw material costs," said TS Harihar of HRBV Client Solutions.
Credit Suisse recently upgraded HUL to 'outperform' from 'neutral' and increased its target price on the stock to Rs 915 from Rs 800 earlier. The brokerage increased its earnings expectation from HUL by 4 per cent, factoring in lower input costs. It expects 21 per cent earnings CAGR over FY15-17 against 10 per cent CAGR over past two years.
JP Morgan has also revised its rating on HUL to 'neutral'. It expects its gross profit margins to expand by 200 basis points in FY16.
Meanwhile, Deutsche Bank says HUL's investment in expanding its distribution network will help the FMCG major gain market share in most categories. Deutsche Bank has increased its target price on the stock to Rs 900.
Although slowing economy has resulted in muted volume growth for HUL over past several quarters, analysts expect a revival in volume growth in FY16 supported by increased consumer spending on the back of falling inflation.
Shares in HUL have gained over 55 per cent in last one year against nearly 33 per cent gain in the broader Sensex. As of 11.10 a.m., HUL shares traded 3 per cent higher at Rs 890.45 on the NSE. It was the top Nifty gainer.