IGI Logo

Strengthening core; eyeing for volume recovery

* Hindustan Unilever’s (HUVR) FY26 annual report highlights its key focus on portfolio transformation, driven by increased innovation across high-growth segments and strengthening omnichannel capabilities. Demand trends improved progressively through the year, aided by improving macros and government measures. Consumer behavior in FY26 continued to reflect a dual pattern: value-consciousness in everyday essentials coexisted with a growing willingness to premiumize in categories offering superiority (functional efficacy). This affordability-versus-aspiration dynamic shaped HUVR's portfolio strategy across the year. On the channel front, alternate channels outpaced traditional general trade, with E-commerce delivering over 25% turnover growth and Quick Commerce (QC) turnover doubling in FY26.

* HUVR remains focused on driving volume-led revenue growth, even at the expense of near-term margins. Despite concerns around rising crude prices and macro volatility, management believes the company is well-positioned to navigate the environment through commodity hedges, accelerated cost-saving initiatives, portfolio transformation strategies, and strengthening omnichannel capabilities. Further, the company has announced INR20b of capex toward premium and highgrowth categories and remains optimistic about delivering improved performance in FY27 vs FY26. In its 4QFY26 concall, HUVR maintained consolidated EBITDA margin guidance of 22.5-23.5% (adjusted for the ice-cream business demerger). We reiterate our BUY rating on the stock with a TP of INR2,650 (50x on Mar’28E EPS).

FY26 witnessed a gradual recovery, supported by improving macros

FY26 marked a year of improving demand trends for HUVR. Easing consumer price inflation, a supportive policy environment, and a healthy monsoon season collectively boosted purchasing power, particularly in rural markets. Urban demand remained resilient, though select discretionary categories experienced some softening. The company posted a 5% YoY revenue growth, supported by 4% volume growth. Gross margin contracted 60bp to 50.9%, given high volatility in input costs, resulting in a 50bp EBITDA margin contraction to 24%. PAT remained flat YoY at INR103b in FY26. The dividend payout ratio stood at 93%, compared to 97% in FY25. The company achieved efficient net working capital days of -30 days in FY26. Management remains optimistic about a stable demand environment over the medium term. However, short-term volatility may persist amid ongoing geopolitical uncertainties. That said, HUVR continues to remain focused on driving volume-led revenue growth.

Business segment highlights

* In FY26, the Home Care business (37% revenue mix) posted 3% sales growth, driven by high single-digit volume growth. Price cuts undertaken during the early part of FY26, amid a deflationary commodity environment (aimed at maintaining a competitive price-value proposition), moderated reported sales growth. A key structural development in the category has been the rapid format upgrade from powders and bars to liquids, supported by calibrated pricing to improve access and affordability. HUVR drove strong double-digit unit volume growth in Liquids across all price tiers.

* The Beauty & Wellbeing (B&W) segment (23% mix) delivered balanced volume and price growth, led by Hair Care, Health & Wellbeing, and Premium Skin Care. Mass-market Skin Care remained subdued due to shifting consumer preferences, but the premium portfolio continued its strong growth trajectory. Two significant inorganic transactions (OZiva and Minimalist) drove segment growth.

* Personal Care sales (15% mix) undertook pricing actions in FY26 due to sustained commodity inflation in palm oil derivatives. Skin Cleansing delivered mid-single-digit growth with strong premium bar and bodywash momentum. HUVR stated that bodywash has nearly tripled in size over the last three years. Oral Care delivered mid-single-digit growth. Deodorants underwent significant portfolio evolution centered on premium formats. E-commerce and QC accelerated trials for premium formats in the category.

* The Foods & Refreshment (22% mix) business grew 4% in FY26, broadly driven by volumes, with performance improving sequentially. HUVR's strategy for the segment is anchored in four strategic big bets: premiumizing Tea and Coffee, pivoting to Lifestyle Nutrition, building Kissan into a mega food brand, and scaling ready-to-drink (RTD) formats. Lifestyle Nutrition, which had been a drag on performance, recorded four consecutive quarters of positive volume growth, signaling a meaningful turnaround.

Valuation and view

* HUVR continues to strengthen the key drivers underpinning 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

c) Inorganic growth opportunities

d) Funneling cost savings back into the business; and e) strong execution capabilities that have led to positive earnings momentum.

* HUVR has continued to strengthen its brand, distribution network, and quality of personnel, thereby staying ahead of its peers. In addition, through its analytics and R&D initiatives in recent years (much ahead of its peers), the company is ensuring it remains resilient in a dynamically changing environment.

* HUVR remains focused on topline growth, backed by volume acceleration alongside new launches across categories and channels. The company has unveiled its ‘Unified India’ strategy to simplify the organization structure to accelerate decision-making and execution.

* HUVR continues to remain focused on driving volume-led revenue growth, even at the expense of near-term margins. Despite concerns around rising crude prices and macro volatility, management believes the company is wellpositioned to navigate the environment through commodity hedges, accelerated cost-saving initiatives, portfolio transformation strategies, and stronger omnichannel capabilities. Further, the company announced INR20b of capex toward premium and high-growth categories and remains optimistic about delivering improved performance in FY27 vs FY26. In its 4QFY26 concall, HUVR maintained consolidated EBITDA margin guidance of 22.5-23.5% (adjusted for the ice-cream business demerger). We reiterate our BUY rating on the stock with a TP of INR2,650 (50x on Mar’28E EPS).

For More Research Reports : Click Here 

For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412