Add Hindustan Unilever Ltd for the Target Rs 2,350 by Emkay Global Financial Services Ltd
HUL reported decent 1QFY27 results, with revenue growth of 10% yoy (in-line). Volume growth of 5% yoy was in line with our estimate, but below consensus expectation. Among segments, Home Care led with 14% yoy underlying sales growth (USG) and high-single-digit underlying volume growth (UVG). Beauty and Wellbeing also reported double-digit yoy growth, while Personal Care and Foods reported USG of 4% and 7%, respectively. Margins remained under pressure, with gross margin down by 80bps yoy due to higher input costs. However, the EBITDA margin decline was lower, at 30bps yoy, due to cost controls (mainly lower A&P spends). The management expects margin pressure to continue due to elevated commodity prices, but expects overall FY27 performance to be better than in FY26, on the back of portfolio and channel transformation. HUL’s stock corrected ~7% after 1Q results, making the riskreward more favorable, in our view. We marginally adjust our estimates and maintain ADD with unchanged TP of Rs2,350 (43x Jun-28E EPS) due to cautious demand outlook (expectations of below-normal monsoon) and potential margin pressure, especially in 2Q due to elevated commodity prices.
1QFY27 results summary
Revenue grew 10% yoy on a favorable base and was in line with our and consensus estimates. Gross margin declined by ~80bps yoy to 49.5% (-70bps qoq) due to higher input costs. EBITDA grew 8% yoy (3% ahead of our estimate; in line with consensus) with EBITDA margin at 22.8% helped by lower A&P spends as a % of sales (-50bps yoy). Reported PAT (before exceptional items) grew 9% yoy.
Key takeaways from earnings call
1) Demand remained stable in 1Q, but going forward, monsoon levels and geopolitical developments will be key monitorables.
2) The management mentioned that overall macro remains resilient and a monsoon deficit of up to 15-20% can be manageable.
3) In 1Q, both rural and urban witnessed robust growth, with rural demand on an improving trajectory.
4) The premiumization trend is growing faster in rural.
5) Volume growth was impacted by a decline in soaps and tea, while the remaining portfolio witnessed growth.
6) The management expects overall FY27 performance to be better than in FY26 on the back of portfolio and channel transformation. EBITDA margin is expected to be at 22.5- 23.5%.
7) Oziva had another soft quarter, as it is going through a transition phase. The management is bullish on the wellness category and expects growth to be non-linear.
8) Quick commerce continues to grow at a strong pace of 40-50% and remains a key growth driver.
9) HUL expanded offline distribution of digital-first brands Minimalist and Simple.
10) While its premium portfolio is growing faster, the company remains competitive at the mass end as well, per management.
11) Tea prices have turned inflationary recently, and HUL plans to wait a bit before taking any pricing actions.
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