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We maintain ADD on HUL and Mar-26E TP of Rs2,400 (47x P/E), given limited upside potential. Our concern stems from HUL’s inability to fully benefit from the improved show in part of the business as well as inconsistent performance in the segments. In Q4, while the BPC segment showed improvement, performance in Home Care and Foods was weak. Revised near-term operating margin guidance of 22–23% signals HUL’s aggressive intent to stimulate growth, especially in Beauty & Wellbeing. With better macros and portfolio actions, the mgmt sees improved growth ahead. Factoring in the guidance, we cut earnings by 1-3% over FY26-27E; we also introduce FY28 estimates.

Q4FY25 results in-line; higher other income drives 3% better earnings

Reported revenue grew 2% YoY, with 2% underlying volume growth. The BPC segment fared better with 4% sales growth, while Home care (grew 2%, in-line) and Foods (flat, in line) put up a weak show. Gross margin contracted by 155bps YoY to 50.5%, in-line. EBITDA margin dropped below the 23-24% guidance to 22.8%, down by 30bps YoY. Earnings grew 4%, aided by 24% better non-operating income.

Margin guidance cut to 22-23% for near-term; ‘play-to-win’ competitive stance

Amid improving macros (from monetary policy changes, tax relief, easing in crude prices, lower inflation, expectation of a better monsoon, and resilient growth in rural areas) and portfolio actions from HUL being in place, the company is looking to double down on growth prospects, with a near-term margin hit strategy. This margin hit will be pronounced in Beauty and Wellbeing, where new age brands offer higher retail margin. The mgmt is looking to drive growth for the revamped brand portfolio. With likely growth as operating leverage kicks in, HUL is looking to recover margin from 2HFY26. In the long run, the mgmt targets resuming modest improvement in its margin trajectory.

Sustained thrust on moats; connecting with new user key

HUL, per its strategy to future-proof moat, is inculcating science and technology in core offerings (like action in Soap, Shampoo, Floor Cleaner), enhancing the supply chain and strengthening traditional trade. Its sales concentration is ~70% with general trade, ~20% with modern trade, 7-8% from e-com (~2% from Quick com) and balance from other institutional channels. The mgmt has called out its direct value-added distribution at 69% (an edge), which is up by 400bps since the last 18 months. HUL has been aligned with traditional trade, supporting trade with credit and looking for better incentivization.

Await growth recovery before turning positive; maintain ADD

Management actions so far have not been productive, given weak macros. As the broad strategy and execution is in place, the company is turning aggressive and looking to revive growth from FY26. Given the wider portfolio and sustained disruption, we await growth recovery before turning positive. We maintain ADD and Mar-26E TP of Rs2,400.

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