Accumulate Hindustan Unilever Ltd For Target Rs.2,686 by Prabhudas Liladhar Capital Ltd
Green shoots visible, but no fireworks likely
Quick Pointers:
* HUVR delivered 3% volume growth (4% consolidated basis), expect gradual improvement in coming quarters
* HUL has guided for low-single digit pricing growth in a stable commodity cost environment with margins in band of 22-23%
We cut FY26/FY27EPS by 1.1/4.5% factoring in 1) 18% decline in financial other income over FY25-27 due to lower cash surplus and interest rates 2) impact of ice cream business from FY27 and 3) and lower sales growth due to price cuts in homecare and tepid sales in Horlicks.
HUVR is adopting aggressive strategy to accelerate growth by 1) price cuts and new launches in laundry portfolio 2) re-launch of Boost and plans to significantly re-launch Horlicks to arrest sales decline 3) sustained investments behind Future Core & Market Makers, part of portfolio which are growing in double digits. HUVR is making a big push in premium segments in Beauty and wellbeing to regain lost ground by B2C acquisitions and new launches and brand extensions, which should start showing impact by end of 1H26. Recent acquisitions are on track as OZiva sales are 3x in 1 year while Minimalist sales have grown in double digits since acquisition.
We expect volume/sales and margins to inch up gradually in coming quarters with expected PAT growth exit of FY26 in high single digits. We expect 5.6% Sales CAGR and 4% EPS CAGR over FY25-27. We assign DCF based target price of Rs2686 (Rs2601 earlier) as we roll forward to Jun’27, implying target PE of 55.6x JuneFY27 EPS. Retain Accumulate.
1Q Volumes at 4%, Gross Margins decline ~222bps YoY: Revenues grew by 3.9% YoY to Rs159.3bn (PLe: Rs160.2bn). Volumes grew 4% (Ple 2%). Gross margins contracted 222bps YoY to 49.2% (PLe:50.7%). EBITDA de grew by 1.2% YoY to Rs35.5bn (PLe: Rs36.4bn). A&P Expenses declined by 5.4% YoY to Rs15.5bn. Adj PAT contracted by 3.2% YoY to Rs24.9bn (PLe: Rs25.6bn).
* Home Care revenues grew by 1.9% YoY: EBIT declined by 1.4% YoY, while margins contracted by 65bps YoY to 18.9%. High-single digit volume growth with mid-single digit UVG in Fabric Wash led by robust double-digit growth in Liquids. Household Care witnessed double-digit UVG driven by dishwash.
* Personal Care revenues grew by 6.5% YoY; EBIT grew by 12.4% YoY, while margins expanded by 98bps YoY to 18.5%. Low single-digit volume decline; Skin Cleansing posted mid?single?digit growth, led by strong sales in non?hygiene variants. Premium Bars grew in volume (mid?single digits), resulting in double?digit segment growth overall. Bodywash delivered double?digit growth. Oral Care registered mid?single?digit growth, primarily led by prices in a competitive landscape.
* Beauty & Wellbeing revenues grew by 4.7% YoY: EBIT contracted by 2.9% YoY, while margins declined by 227bps YoY to 29.2%. Low single-digit volume growth is driven by strong performance in Hair Care & Health & Wellbeing. Skin care and Colour Cosmetics delivered low-single digit growth. Dove brand reported double-digit sales growth for second consecutive quarter.
* Food & Refreshment revenues increased by 4.3% YoY; EBIT declined by 11.4% YoY, while margins contracted by 288bps YoY to 16.2%. volumes increased by mid-single digit. Tea grew in high single digit driven price and volume; Coffee continued its strong double-digit growth. Boost reported growth while Horlicks continued to report decline in sales with QoQ improvement. Packaged Foods grew mid-single digits whereas Ice Cream delivered high single digit volume led growth dragged by early onset of rains.
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