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Positive commentary for macros; expect better print in FY27

* Hindustan Unilever (HUVR) registered consolidated revenue growth of 6% (adjusted for the ice-cream demerger) at INR162.3b, compared to our expectation of 4%. Underlying volume growth was at 4% YoY (better than expected). October was impacted by the GST transition, which was offset by restocking in Nov/Dec. Hence, there was no impact of GST for the quarter. However, the company saw a steady improvement in demand, backed by supporting macros. This built confidence in a growth recovery in FY27, driven by macro recovery as well as portfolio and channel transformation initiatives.

* Gross margins for the quarter expanded 30bp YoY to 51.4% (in line). HUL expects mild RM inflation and will calibrate pricing actions accordingly. EBITDA margin in 3Q remained flat YoY at 23.7%. (est. 23.2%). HUL expects low single-digit pricing growth in FY27 and indicated that consolidated EBITDA margin would be within the current guidance range of ~23%.

* HUVR continues to remain focused on driving volume-led revenue growth, even if it comes at the expense of near-term margins. With various strategies underway across the portfolio and channels, management is optimistic about better operational performance in the coming quarters. The macro recovery pace and strategy execution of the new CEO will remain key monitorables. We reiterate our BUY rating on the stock with a TP of INR2,800 (55x on Dec’27E EPS).

In-line show with UVG at 4%

* Slightly better UVG at 4%: Net sales grew 6% YoY to INR162.3b (est. INR158.6b). Adjusted for the ice-cream demerger, the underlying revenue growth expectation was 4%. Underlying volume growth is at 4% YoY (est. 3% and flat in 2QFY26).

* Home Care delivered mid-single-digit volume growth, with revenue growing 3% YoY to INR58.9b. The category continued to witness a negative price impact due to pricing actions taken during the year. Fabric Wash delivered mid-single digit UVG. Liquids portfolio accelerated its growth momentum and grew in double digits. Household Care strengthened its double-digit UVG trend, led by Vim liquid. EBIT margin contracted 20bp YoY to 18.7%.

* Beauty & Wellbeing segment witnessed low-single digit volume growth, with revenue increasing 10.5% to INR39.3b. Hair Care saw volume-led double-digit growth. In Skin Care and Colour Cosmetics, the Winter portfolio delivered double-digit growth for the season. However, this was offset by a weaker performance in the non-winter portfolio. OZiva sustained its strong performance with double-digit growth. Minimalist continued to expand its skin and face portfolio. EBIT margin contracted 250bp YoY to 26.1%.

* Personal Care saw low-single-digit decline in volumes, while sales grew 6% YoY to 23.7b. Oral Care posted double-digit growth, driven by Closeup. Skin Cleansing saw mid-single-digit growth, led by pricing. Premiumization remained a key growth driver, as premium skin cleansing bars posted strong double-digit growth. Personal Care margin contracted 10bp YoY to 21%.

* Food & Refreshment (F&R) delivered high-single-digit volume growth, with sales growing 6% YoY at INR36b. Tea delivered mid-single-digit UVG, while revenue recorded low-single-digit growth, given price cuts taken in a deflationary RM environment. Coffee continued its strong double-digit growth momentum, supported by both price and volume. Lifestyle Nutrition grew in high single digits, driven by both Boost and Horlicks. Packaged Foods reported high single-digit growth, led by volumes. However, the Food & Refreshment segment margin contracted 120bp YoY to 21%.

* EBITDA grew 6% YoY: Gross margins for the quarter expanded 30bp YoY to 51.4% (est. 51.2%). Employee expense grew 13% YoY, while other expenses rose 8% YoY and ad spends rose 2% YoY. EBITDA margin remained flat YoY at 23.7% (est. 23.2%). EBITDA grew 6% YoY to INR39b (est. INR37.4b – adjusted with the ice-cream demerger). PBT grew 4% YoY to INR36.1b (est. INR34.3b), while PAT (bei) was flat YoY at INR26.2b (est. INR25.7b).

* Exceptional items for continuing operations include INR4.98b related to the fair valuation of financial liabilities arising from acquisitions, restructuring expenses of INR680m, acquisition and disposal-related costs of INR110m, and a profit of INR10m from the sale of property. We have also added INR1.13b as the impact of the new labor code under exceptional items.

* In accordance with Ind AS 10 ‘Distribution of Non-Cash Assets to Owners’, HUL has debited the fair value of the Ice Cream business to retained earnings, treating it as a dividend distribution to the shareholders of the holding company (HUL). The difference between the fair value and the carrying amount of the net assets of the ice cream business as at the effective date is recognized as a gain on demerger and disclosed as an exceptional item under discontinued operations, amounting to INR46.11b. Further, upon the scheme becoming effective, the investment made by HUL in KWIL stands cancelled.

Management conference call highlights

* In Home Care, pricing has remained benign, influenced by commodity trends and competitive pressures. Rising inflation in commodities has prompted the company to initiate calibrated price hikes in home care.

* Management expects low-single-digit price growth for the full year in FY27. The guided FY27 revenue growth will be better than FY26.

* Distributor and retailer pipeline levels have largely normalized following October destocking and November restocking; 3QFY26 should be considered as a normal quarter.

* Quick commerce is emerging as a structurally critical channel, currently contributing ~3% of sales and scaling rapidly.

* Minimalist and Oziva together form an INR11b business.

* Nutrition business saw its third consecutive quarter of positive growth. Boost is growing in double digits, while Horlicks is improving through price-pack corrections.

Valuation and view

* We largely maintain our estimates for FY26-FY28.

* 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 lean the organization structure to accelerate decision making and execution.

* We expect supportive macroeconomic factors to act as a catalyst for boosting consumption sentiment. As a market leader in most staple categories, coupled with its strategic initiatives, HUVR is well-positioned to benefit the most. We model a 7%/9%/10% revenue, EBITDA, and APAT CAGR over FY26-28E. With various strategies underway, management is optimistic about stronger performance in the coming quarters. We believe HUVR is well-positioned to capitalize on its volume growth aspirations amid supportive macro drivers. We reiterate our BUY rating on the stock with a TP of INR2,800 (55x on Dec’27E EPS).

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