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Exciting product funnel; gearing up for growth

Hindustan Unilever (HUVR) hosted Capital Market Day-2024 and underlined its business moats and competitive positioning across its categories. The company aims to remain relevant within India’s large consumption theme, which comprises 1) income prosperity; 2) a young population with a median age of under 32 years, and 3) increasing digital and social connectivity. The company’s strong funnel of product innovation (mainly for Beauty & Wellness) was the showstopper. Despite a large scale, the company remained committed to growing both its core portfolio and newer segments to achieve volume-driven double-digit EPS growth in the medium term.

* HUVR remains strategically aligned with India's evolving economic landscape, leveraging structural shifts in income distribution and consumer behavior. As India transitions from a pyramid to a diamond-shaped income structure (refer to Exhibit 1), HUVR capitalizes on rising disposable incomes by driving premiumization across its portfolio while catering to diverse consumer segments. Over 80% of growth is expected to stem from the future core (premiumization sweet spots) and market makers (leading trends), complemented by core categories that enhance penetration. The company has a robust distribution network of over 9m outlets (3m direct reach) and is growing digitization (1.4m outlets serviced through the Shikhar app, capturing 50% of traditional trade demand). HUVR has also achieved 30% ecommerce CAGR over the past three years, contributing 7% of sales.

* In the near term, management expects stable demand with moderate urban growth and gradual rural recovery. The volatility in tea and palm oil prices presents a challenge. The company remains focused on volume-led growth, complemented by low single-digit price hikes to offset raw material pressures.

* Over the long term, HUVR targets competitive turnover growth driven by volume (100bp ahead of the market), premiumization, and portfolio transformation in Beauty & Wellbeing (B&W) and Foods. Margins are expected to remain stable with moderate expansion; EBITDA margins stood at 23.8% in 1HFY25 and we model ~24% margins for FY25-26. Management also guides for double-digit EPS growth. We model sales/EBITDA/adj. PAT CAGR of 7%/8%/9% over FY24-27E. We reiterate a BUY rating with a TP of INR3,100 (55x Dec’26 EPS) on account of HUVR's superior competitive moats within the consumer staples sector

Beauty and wellness - capturing growth in the premium landscape

HUL maintains its market leadership across key beauty categories such as skincare, haircare, and color cosmetics, fueled by an innovation-driven approach and pioneering firsts such as hair conditioners, liquid lipsticks, and CC creams. Rapidly evolving Indian beauty consumers, influenced by rising affluence and digital engagement, are driving premiumization as a key value lever. HUL strategically leverages social media, where 8 out of 10 beauty shoppers discover brands, to amplify reach and influence purchase decisions. Its growth strategy emphasizes elevating core brands, market-making in emerging categories, and catering to affluent+ segments with masstige brands such as Nexxus and Dermalogica. With significant penetration headroom in India’s nascent beauty market, HUL’s curated RTM strategies—targeting affluent consumers via expanded assortments and premium store integrations—are expected to deliver 90% of incremental gains, driving a 900bp portfolio shift toward premium segments.

Personal care – scaling through innovation and regional strategies

HUL’s Personal Care segment, the largest in India, drives growth through market leadership in skin cleansing, oral care, and deodorants, with flagship brands such as Lifebuoy and Lux achieving turnovers above INR10b. The business employs its WiMI (Winning in Many Indias) approach to deliver region-specific products, such as neem and sandal variants, and optimizes channel-specific strategies across traditional trade, modern trade, and e-commerce. High-growth categories such as body wash, with 5x growth and 2x profitability over soaps, and roll-on deodorants are key focus areas, supported by aggressive sampling and media campaigns. HUL’s differentiated strategies address aspirational consumers through affordable formats such as sachets, while targeting affluent segments via premium channels and advocacy-driven efforts. A focus on premiumization, emerging categories, and personalized consumer experiences powered by AI positions HUL to sustain leadership and accelerate growth in this dynamic segment.

Home Care - capitalizing on liquid detergents and brand leadership

HUL’s Home Care segment has seen robust growth with turnover increasing 2.8 times over the past decade, driven by a focus on premiumization and operational efficiencies. Surf Excel, the category leader, is on track to exceed INR100b in revenue by FY25, with premium powders experiencing a 10x growth in turnover and a 4x increase in penetration since 2014. The company has also pioneered the fabric enhancer category with Comfort, which has seen a 7x growth in turnover. Additionally, HUL has expanded its presence in liquid detergents, with Surf Excel liquids growing 3x in turnover and 4x in penetration. Despite liquids growing faster than powders, significant potential remains, particularly as only 17m households currently use liquid detergents. HUL is leveraging strategic partnerships with washing machine manufacturers and employing channel-specific innovations across Modern Trade, General Trade, and E-commerce to accelerate adoption and further expand market share 

Food and refreshment – unlocking potential in key categories

HUL maintains a dominant position in key food and beverage categories, holding the #1 spot in tea, lifestyle nutrition (Horlicks), and condiments, while ranking #2 in coffee, with leadership in South India. The company’s strong brand equity and advanced technologies, such as enzyme-based flavor enhancement and prebiotic benefits, drive higher Unmissable Brand Superiority (UBS) scores. HUL ensures extensive distribution, reaching 1.8m outlets monthly, and focuses on premium health categories within lifestyle nutrition. With significant growth opportunities in under-penetrated segments such as condiments, packaged tea, and coffee, HUL is expected to expand market share, particularly through innovations tailored to Indian tastes. The company targets high single-digit growth in its F&R segment by improving profitability and capturing additional share across key categories.

Near-term outlook is challenging

In the near term, management anticipates stable demand trends, with urban demand moderating and rural demand showing a gradual recovery. Commodity price volatility, particularly in tea and palm oil, remains a key challenge. The company will focus on volume-led growth and may implement a low single-digit price hike to mitigate raw material cost pressures. It will prioritize efforts to restore gross profit margins and maintain EBITDA at current levels. Strategic divestments, such as Pureit and the ice cream business, and digital-led investments (40% of media spending) are expected to enhance operational agility. Additionally, cost-saving initiatives across P&L will provide a solid foundation for sustainable long-term growth.

Long-term outlook – strategic investment and sustainable growth

HUL’s long-term goals are centered on delivering double-digit EPS growth, with balanced volume (100bp ahead of market) and price growth. The company is significantly increasing its investment in future core categories and market-making segments to drive growth at 1.25x and 1.5x the market pace, respectively. With a strong focus on profitability through cost efficiencies and premiumization, HUL aims for moderate margin expansion and nearly 100% cash conversion of net profits. Capital expenditure will rise to support growth, while strategic M&A and resource allocation toward sust

Valuation and view

* The company continues to place building blocks for future growth and has been able to do so ahead of its peers. It continues to display the capabilities despite its larger size.

* HUVR has strengthened the key drivers of its success in India over the last decade, including a) pioneering the use of technology to generate data and facilitate decision-making; b) the Winning in Many Indias (WiMI) strategy focused on decentralization and localized strategies; c) recognizing trends and investing in them early on; d) funneling cost savings back into the business; and e) its strong execution ability, which has led to positive earnings momentum.

* 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.

* Under the new leadership of Mr. Rohit Jawa, 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

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