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AR analyses: Timely execution key amid visible green shoots

HUL’s FY24 Annual Report highlights its thrust on product superiority (3x superior products now vs 2019) and its Intelligent Enterprise initiative (geared to leverage opportunities with digital ecosystem in place). Its transformation journey started early on (a decade ago), inducing better results. But headwinds and muted execution in recent years have played spoilsport. Going ahead, the company needs to enhance its execution capabilities in the core/base portfolio, where focus should be on driving consumption, with premiumization the key theme. Rural rebound with anticipation of better monsoons is a positive, but we await tailwinds. We build in CAGR of 8% in topline and 10% in earnings over FY24-27E. Stock’s 12M fwd P/E at 49x is in line with its last 10Y avg fwd P/E, which seems fair. We maintain ADD with new Jun-25E TP of Rs2,575/share.

Reviving growth in core, key in FY25

HUL’s AR highlights organizational thrust on its Intelligent Enterprise initiative, thus leveraging its existing digital ecosystem. But Company needs to be able to promptly align to evolving consumer trends. With social media, the gap in consumer evolution globally has thinned. This is clearly visible in online channels, though general trade (dominant revenue share) has yet to witness a transformation and is thus seeing slower growth. HUL is well equipped to gauge global trends in India, given that its strong parentage has operations worldwide. As the new management settles in, we expect execution to improve, wherein devising a new trend would be key (differentiator for HUL in the past). In the last few years, HUL has worked on weak areas like functional nutrition, oral care, and beauty care, but has lost its grip on core segments.

Category thrust to intensify ahead

Under its new leadership, HUL targets growing core segments via brand superiority, driving ‘market making’ (i.e. category development), reshaping portfolio into premium spaces, and strengthening leadership in channels of the future. Growth trends were muted in FY24, with key milestones like brands with Rs10bn+ revenue still stagnant at brand-count of 19, home-care liquid revenue inert at >Rs30bn, and digital brand ARR at only Rs1bn. The margin profile would gradually improve, as HUL recoups gross margin with sales mix. We build-in 10% earnings CAGR for FY24-27E. With limited funding needs, we see near-full payout of earnings as dividend. HUL’s return profile would see steady progress with rebound in margin.

Re-rating asks for tailwinds and enhanced execution; maintain ADD

We await stock tailwinds and believe headwinds are mostly priced-in. Stock could rerate on demand recovery (esp. with rural rebound) in our view, but requires enhanced Mgmt execution. In this note we introduce FY27 estimates and roll-over to Jun-26E earnings from Mar-26E; we raise our TP to Rs2,575/sh (on 49x P/E, in line with its last 10YF P/E).

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