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Moderate revenue growth: HUL’s Q1FY25 revenue increased 1.4% YoY and 3.3% QoQ to Rs 15,707cr. Underlying volume growth (UVG) came in at 4% for the quarter while declining price impacted topline growth. Amongst segments, beauty & personal care (36.1% of revenue) performance remained flat YoY while grew 10.6% QoQ to Rs 5,667cr further home care segment (37.5% of revenue) shown mixed performance with growth of 4.6% YoY while de-grew QoQ by 0.6% to Rs 5,673 and food & refreshment segment (24.5% of revenue) grew by 1.4% YoY but de-grew 1.5% QoQ to Rs 3,850cr.

Gross margin and EBITDA margin seen improvement: HUL’s gross profit grew by 4.4% YoY and 2.6% QoQ to Rs 8,162cr. Further, it saw healthy margin improvement of 132bps YoY to 52% led by decline in raw material cost but seen a decline of 32bps sequentially. Management continues to focus on building back gross margin through improved price coverage and productivity measures. Further, its EBITDA grew by 1.1% YoY and 5.9% QoQ to Rs 3,744cr with EBITDA margin came in at 23.8%, improvement of 19bps YoY and 60bps QoQ. So, improvement in margin was because of lower employee cost (down 7% YoY).

Key highlights: 1) Demand trends have improved with a 4% unit volume growth (UVG) in the first quarter. The forecast of a normal monsoon and better crop realization has supported a sustained gradual recovery in rural demand. 2) Expects price growth in low single digit in H2FY25 3) EBITDA margin is expected to improve moderately over the medium term, driven by operating leverage, mix improvement and growth in premium portfolio. 4) Company's distribution channels consist of 70% through general trade (GT), 20% through modern trade (MT), and 10% through e-commerce and quick commerce. In major metro cities, modern trade accounts for approximately 40-50%. Over the last three years, the contribution from the premium portfolio has increased by about 300 basis points. 5) During the quarter, Lux and Lifebuoy were re-launched with a superior product formulation.

Outlook & Valuation: HUL saw moderate year-on-year and sequential growth in revenue and PAT, with improved margins, despite ongoing negative realization growth. The company recorded a 4% volume growth, and we expect gradual improvement in volumes driven by the recovery in rural markets. Looking ahead, HUL will focus on driving premiumization and volume-led growth, continuing to invest in brands and core growth, developing high-growth brands, and expanding distribution channels. On the financial front, we expect revenue/EBITDA/PAT to improve by 9.5%/11.4%/12% CAGR over FY24-26E. So, from a mid to long term perspective we remain optimistic on the growth prospect of the company. We have revised our rating to Accumulate on the stock by revising the target price to Rs 3,018 and assigned a P/E multiple of 55x on FY26E EPS.

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