Buy Hindustan Unilever Ltd for the Target Rs.3,000 by Motilal Oswal Financial Services Ltd
Growth aspirations falling in place; more to come!
* Hindustan Unilever’s (HUVR) 1QFY26 consolidated revenue was up 5% at INR165.1b (in line), with underlying volume growth (UVG) of 4% (est. 3% and 2% in 4QFY25), led by a steady recovery in rural markets (~1/3 of portfolio) and a gradual improvement in urban demand. Growth improvement reflects positive outcomes of HUVR’s recent growth aspiration initiatives.
* Home Care delivered high-single-digit volume growth, while revenue was up only 2% YoY. There was an adverse pricing impact as HUVR maintained a competitive price-value equation and passed on lower commodity costs to consumers. EBIT margin was down 50bp but up 70bp QoQ YoY at 19.5%.
* Beauty & Wellbeing (B&W) segment saw low-single-digit volume growth and revenue growth of 11%, supported by robust growth in Oziva and Minimalist acquisition. Standalone revenue grew by 7%, driven by various initiatives. Hair Care delivering mid-single-digit growth, driven by Future Core and Market Makers portfolio. Skin Care and Colour Cosmetics grew in low-single digit. EBIT margin contracted 300bp to 27.5% due to higher investments in digital media and product innovation.
* Personal Care posted 7% revenue growth, supported by calibrated price hikes amid commodity inflation. Skin Cleansing and Oral Care grew in midsingle digits. EBIT margin expanded 90bp YoY to 18.7%, and EBIT rose 12%.
* Food & Refreshment (F&R) revenue grew 4%, with mid-single digit UVG. Beverages grew in double digits, with Tea delivering high-single-digit growth on the back of pricing and volume, while Coffee maintained its strong double-digit growth, driven by pricing. Boost and Horlicks saw sequential improvements, and Ice Cream posted high-single-digit volume-led growth. However, EBIT declined 11% YoY.
* HUVR focuses on volume-driven earnings growth, for which the company is ready to compromise on the near-term margin, and the strategy looks outcome-oriented. 1Q performance hints at the beginning of a much better volume print delivery in the coming quarters. We believe the new CEO can further capitalize on the volume drive with her understanding of Indian consumers and the company’s execution playbook. We reiterate our BUY rating on the stock with a TP of INR3,000 (55x on Jun’27E EPS).
In-line performance; volume up 4% YoY
* Net sales grew 5.2% YoY to INR163.2b (est. INR162.3b), with UVG of 4% (est. 3% and 2% in 4QFY25). Total revenue rose 5% YoY to INR165.1b (est. INR164.2b). Home Care revenue grew 2%, B&W grew 10.7%, personal care grew 6.5%, and F&R declined 4.3% YoY. ? Gross margins contracted 190bp YoY to 50.1% (est. 50.6%), hit by price vs. cost gap. Employee/other expenses rose 11%/4% YoY, while ad spends fell 1.5% YoY. EBITDA margin contracted 130bp YoY to 22.5%. (est. 22.4%). Management expects gross margin to improve sequentially, aided by better price-cost dynamics, a favorable mix, and ongoing benefits from the Net Productivity Program. HUVR retained its EBITDA margin guidance of 22-23%.
* EBITDA was flat YoY at INR37.2b (est. INR36.9b), PBT was down 4% YoY at INR34.3b (est. INR34.8b), and PAT (bei) fell by 4.5% YoY to INR25.3b (est. INR26.0b).
* Reported PAT was up 5.6% YoY at INR27.6b. There was an exceptional item of INR1,270m related to restructuring expenses and the reversal of an indemnification asset on expiry of an underlying income tax provision. Moreover, the 1Q tax rate was lower on account of the impact of re-estimation of tax provisions pertaining to prior years.
Management conference call highlights
* Rural-led recovery remains intact, with urban demand also picking up, albeit at a slower pace. Growth is being driven by smaller towns and channels like ecommerce and quick commerce. HUVR’s rural business comprises ~1/3 of its overall portfolio.
* The combined digital-first B&W portfolio now stands at INR30b (Minimalist + Oziva at INR10b, existing B&W at INR20b). The portfolio is growing by over 25%.
* Glow & Lovely continues to decline, although the rate of decline has moderated sequentially. Management expects the brand to stabilize as macro demand revives and portfolio actions (like relaunches and repositioning) take effect. However, the brand is unlikely to be a major growth driver in the near to medium term.
* ETR stood at 16.2% in 1QFY26 due to a one-off deferred tax reversal; excluding this, the normalized rate remains at 26.4%.
Valuation and view
* We largely maintain our estimates for FY26 and FY27.
* The company plans to focus aggressively on volume acceleration, alongside new launches and the reactivation of its value proposition, which is expected to drive better growth in FY26.
* We model a CAGR of 7%/7%/8% in revenue/EBITDA/APAT over FY25-28E. We believe the new CEO can further capitalize on the volume drive with her understanding of Indian consumers and the company’s execution playbook. We have a BUY rating on the stock with a TP of INR3,000 (55x Jun’27E EPS).
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