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Revenue below estimates: HUL’s revenue was below our estimate at Rs 15,496cr, up by 1.8% QoQ and 6% YoY with the underlying volume growth of 3%. Growth is still price -led and volumes are expected to pick-pace gradually as there is sign of recovery from rural. Amongst segments, sequential growth was largely led by the beauty & personal care segment while others remain muted. However comparing YoY numbers all the segments seen decent growth

Mixed margin growth: Gross profit for Q1FY24 grew by 4.7% QoQ and 12.3% YoY to Rs 7,817cr and margins improved by 136bps QoQ and 285bps YoY to 50.4%. Easing raw material cost and cost optimization measures aided margin improvement. Further, its EBITDA grew by 2.5% QoQ and 7.7% YoY to Rs 3,665cr and margins improved by 16bps and 39bps to 23.7% due to higher spends on advertisements and higher other expenses. PAT de-grew by 1.8% QoQ and 6.9% YoY to Rs 2,556cr and PAT was at 16.5%, decline by 61bps QoQ and 14bps YoY.

Growth driven by beauty & personal care segment: HUL’s beauty & personal care segment contributed highest to its revenue & profits with a share of ~36-37% and 43 -44%, respectively in Q1FY24. It reported a revenue growth of 7.8% QoQ and 4.8% YoY to Rs 5,668cr while profits from this segment grew by 7.8% QoQ & 3.2% YoY to Rs 1,472cr. Volume growth was in mid-single digit. Amongst portfolio, innovation in hair care, premium portfolio of Skin care, double digit growth in oral care and good traction from body wash drove growth. Further price cuts were taken in its soaps portfolio on the back of easing raw materials prices.

Mixed growth from home care segment: In Q1FY24, home care segment contributed ~35% of revenue & 30% of profits. As compared to Q1FY23, its revenue and profits saw a growth of 10% and 17%, respectively while sequentially it posted muted growth with revenue down by 3.8% to Rs 5,421cr and profits down by 5.5% to Rs 1,1013cr. Its volumes grew in mid-single digits. Its premium portfolio from fabric was and household care continues to drive growth for the company.

Flat growth QoQ in Foods & refreshment segment: HUL posted flat revenue and profit growth while volumes too were flat for foods segments while compared to last year same quarter its revenue grew by 4.7% to Rs 3,797cr and profits grew by 17.8% to Rs 681cr. This segment contributes ~24-25% of revenue and ~20% of profits. Going ahead, the management plan is to continue to focus on driving growth through innovations and increase in traction from tea, coffee and ice-cream

Outlook & Valuation: We believe Q1FY24 numbers came in below our expectations. Volume growth is expected to be gradual but rural is seeing signs of recovery which is positive. In the near term, erratic weather conditions and inflation on agri-commodities remains a concern however management seems positive from a medium to long term perspective. Also the new CEO will continue with the same strategy that was driving growth for HUL which are investing behind core, innovating and premiumizing product portfolio, focus on distribution and promotional activity while at the same time maintaining cost. Thus, we maintain our positive view, given HUL’s leadership position along with a strong product portfolio, continuous focus on premiumization and cost optimization will aid in growth going ahead. On a financial front, we have estimated its revenue/EBITDA/PAT to grow at 15.5%/18.3%/17.5% CAGR over FY23-25E and recommend Accumulate rating with a target price of Rs 3,068, assigning a PE multiple of 51x on FY25 EPS.

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