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Revenue growth in single digit, in-line with expectation: HUL revenue for Q2FY24 grew by 3.2% YoY and 0.8% QoQ to Rs 15,623cr with an underlying volume growth of 2% and price growth of 1%. The company is translating from price to volume led growth and overall rural sales in FMCG is showing signs of revival but still negative (-1%) as compared to last year wherein rural growth witnessed a decline of 8-9% while urban market grew by 3% YoY. All segments that contributed to the revenue growth were largely driven by steady growth in the beauty & personal care segment followed by foods; however home care performance remained mixed.

Healthy improvement in margins: HUL posted gross profit of Rs 8,278cr, higher by 19.2% YoY and 5.9% QoQ and margin at 53% with healthy improvement of 711bps YoY and 254bps QoQ driven by cost measures and easing of raw material cost which declined by 10.4% YoY and 4.3% QoQ. Further, the management plan was to spend on advertisement and brand building thus it’s A&P spends increased by 65.4% YoY and 15.7% QoQ to Rs 1,742cr (11% of revenue from 9.7% in Q1FY24 and 7% in Q2FY23). Consequently, its EBITDA reported at Rs 3,797cr, up by 9.1% YoY and 3.6% QoQ while margins were at 24.3% which improved by 133bps YoY and 65bps QoQ. PAT witnessed flat growth YoY but improved by 4% QoQ to Rs 2,657cr while margin was at 17%, down by 62bps YoY but up by 51bps QoQ.

Steady growth in Beauty & Personal Care segment (BPC): HUL’s BPC segment performance led the revenue growth as it grew steady by 5% YoY and 3.6% QoQ to Rs 5,873cr while underlying volume growth was in mid-single digit. It contributed 37.6% to revenue and 45.2% to profits. Further, EBIT grew by 12.4% YoY and 7.5% QoQ to Rs 1,582cr while contribution to margins improved by 133bps YoY and 164bps QoQ. Amongst portfolio, innovation and activation for products continued and strong growth was led by skincare, colour cosmetics and soaps like lux & Hamam while Hair care, oral care and Body wash continued to gain traction.

Mixed growth from home care segment: Home care revenue and profits were mixed for Q2FY24. Its revenue grew by 3.2% YoY but declined by 2.1% to Rs 5,308cr and profits grew by 14.6% YoY but was flat sequentially to Rs 1,014cr as marketing spends increased to protect from competition and maintain its position. Additionally, Home care contributed 34% of revenue and 29% of profits and underlying volume grew in mid-single digit. Its premium portfolio continues to contribute to growth while Dishwash & Fabric wash grew in high & mid-single digit, respectively.

Outlook & Valuation: HUL’s Q2FY24 numbers came largely in-line with our expectation wherein revenue grew in single digit while strong improvement on margins. Going ahead, we expect rural areas to pick up pace and volumes to improve and gross margin to sustain at around levels of 23-24%. Besides, management will continue to invest behind its core brands to maintain its position from competition, also focus on innovation & premiumization as well as spend on advertisement and at the same time maintain margins. We are positive on the growth prospect ahead given its leadership position, strong product portfolio and better financials as compared to peers. On a financial front, we have estimated its revenue/EBITDA/PAT to grow at 15.5%/18.3%/17.5% CAGR over FY23-25E and recommend a Buy rating with a target price of Rs 3,068, assigning a PE multiple of 51x on FY25E EPS.

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