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Muted print; recovery delays further

* Hindustan Unilever’s (HUVR) 3QFY25 revenue was up 2% at INR155.9b (in line), with flat underlying volume growth (est. 1%, 3% in 2QFY25). Demand recovery continues to witness a delay, with urban consumption reeling under pressure. The higher share of LUPs has further impacted the mix for underlying volume growth (UVG). Near-term growth pressure is expected to sustain despite healthy rural demand. The company’s own initiatives are inspiring, but urban recovery is essential for translating them into volume pickup.

* Home Care maintained high-single-digit volume growth and clocked 5% revenue growth. Fabric Wash and Household Care sustained strong growth. The segment continues to see margin expansion, with a 10% YoY EBIT growth.

* The Beauty & Wellbeing segment witnessed a low-single-digit volume decline, with revenue growth of 3% (standalone 1%) impacted by the delayed winter and mass skin portfolio. Hair Care portfolio reported midsingle-digit volume growth and non-winter portfolio delivered mid-singledigit growth. Margin pressure sustained, with EBIT declining 7% YoY.

* Personal Care posted a mid-single-digit volume decline and 3% revenue decline, impacted by skin cleansing. Oral Care grew in mid-single digits, led by pricing. EBIT growth was 9% despite a high RM inflationary scenario.

* Food & Refreshment (F&R) posted a mid-single-digit volume decline with flat revenue growth. Tea witnessed low single-digit growth, led by pricing, while premium tea witnessed growth in mid-single digits. Coffee reported doubledigit growth while Nutrition drinks saw a decline. The Ice Cream business was flat during the quarter. EBIT growth was at 6%.

* The company focuses on volume-led growth through various initiatives to strengthen its core portfolio, expand TAM, drive premiumization, and transform its Beauty & Wellbeing (B&W) and Foods portfolio. The company is also exploring new growth levers through inorganic opportunities. However, near-term performance will remain muted due to urban weakness. We reiterate our BUY rating with a TP of INR2,850 (55x on Dec’26E EPS).

Flat volume growth; marginal miss in EBITDA

* Net sales grew 2% YoY to INR155.9b (est. INR158.0b), with flat underlying volume growth (est. 1%, 3% in 2QFY25). Home Care remains the showstopper, while the B&W segment was the weakest.

* Gross margin contracted 60bp YoY to 51.3% (in-line). Employee expenses were up 5% YoY. Other expenses were up 4% YoY, while ad spends declined 7% YoY. This led to a lower contraction in EBITDA margin by 20bp to 23.4% (in line).

* EBITDA was flat YoY at INR37.0b (est. INR38.4b), PBT was flat YoY at INR34.7b (est. INR36.8b), and PAT (bei) grew 1% YoY to INR25.6b (est. INR27.1b).

* Reported PAT was up 19% YoY at INR29.8b. There was an exceptional item of INR5,070m which included a gain of INR5,740m from the divestment of ‘Pureit’ water purifier business, restructuring expenses of INR720m, and a profit of INR50m from the sale of property.

Management conference call highlights

* FMCG demand trends remained subdued during the quarter, with continued moderation in urban growth, while rural sustained its gradual recovery. Wage growth, food inflation, and employment need to improve to drive overall consumption.

* HUVR has implemented price hikes to mitigate the impact of raw material price inflation. It will continue to raise prices by low-single digits if commodity prices remain at the current level.

* Organized trade continues to outpace growth compared to other channels and has grown in the double digits during the quarter.

* HUVR is under-indexed in the premium beauty and wellbeing category and has targeted to shift its portfolio toward premiumization by 900bp. Recent acquisitions have been made to address the same.

Minimalist acquisition to drive premium B&W

* HUVR has acquired a 90.5% stake in Minimalist at an EV of INR29.55b, paying INR26.70b. The remaining 9.5% will be acquired from the founders within two years. The deal is expected to close in 1QFY26.

* Minimalist has an annual revenue run rate of +INR5b and the business has been profitable since inception. Revenue in FY22/FY23/FY24 was at INR1.03b/ INR1.84b, and INR3.47b.

* The acquisition of Minimalist supports this transformation by expanding HUVR’s beauty portfolio. Minimalist operates in the masstige segment with strong ecommerce capabilities.

Valuation and view

* We cut our EPS estimates by 2% for FY25 and 3% for FY26 as we factor in the delay in demand recovery.

* HUVR has continued to strengthen its brand, distribution network, and quality of personnel, thereby remaining ahead of its peers. Additionally, with its analytics and R&D initiatives (much ahead of peers) in recent years, HUVR ensures it remains adaptive in a dynamically changing environment.

* HUVR is expected to take corrective actions to address the white space, particularly in B&W and Foods. The company commands strong leadership in Home Care, which can be capitalized during improving macros.

* We reiterate our BUY rating with a TP of INR2,850 (55x on Dec’26E EPS).

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