HDFC Securities has downgraded Hindustan Unilever (HUL) to 'Sell' with target price of Rs 800 in its report.

HUL's 3QFY15 total operating revenues grew by 7.6% YoY to Rs 77.7 billion (below est), led by a paltry 3% volume growth in the domestic consumer business. Key disappointments were anticipated pick-up in demand further delayed as volumes grew merely 3% YoY in domestic consumer business (vs 5% YoY in 2QFY15); PP delivered 6.5% YoY sales growth (vs 9.9% YoY in 2QFY15); EBIT margin declined for PP (87bps YoY), Beverages (82bps YoY) and Packaged foods (147bps YoY) and EBIT loss surged 58.7% to Rs 213 million in packaged foods.

Commenting on the investment rationale, the stock broker said, ''We like HUL's robust product pipeline, its strong and lucrative personal products portfolio, and expanding distribution network. Also, softening key RM prices will further benefit gross margins in the coming quarters.  However, valuations seem to completely ignore the emerging risks; no visible pick-up in demand and further increase in competitive intensity due to RM softening.

In addition, rural wages grew by merely 3.8% YoY in Nov-14, the slowest in 10 years, highlighting the imminent pressure on rural sales. Downgrade to Sell with a TP of Rs 800 (33x FY17E).''

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