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Poised for Gradual Recovery led by Volume Growth; Maintain HOLD

Est. Vs. Actual for Q1FY26: Revenue – INLINE ; EBITDA – INLINE ; PAT – MISS

Changes in Estimates post Q1FY26

FY26E/FY27E: Revenue: 1%/1%; EBITDA: 2%/3%; PAT: 2%/3%

Recommendation Rationale

• Demand recovery gaining traction: HUL reported 4% sales growth in the quarter, entirely volume-led (4%), with pricing support in Personal Care. Early signs of demand recovery, particularly in core categories, were met with stepped-up investments to accelerate portfolio transformation. Backed by favourable macro trends and disciplined execution of its ASPIRE strategy, HUL delivered broad-based, competitive growth across segments.

• Margins Outlook: EBITDA margin contracted 117 bps YoY to 22.3%, impacted by a 226bps decline in gross margins. However, management remains confident of sequential improvement, supported by a favourable price–cost equation, better product mix, and ongoing net productivity initiatives. Margin guidance remains at 22–23%, with continued focus on volume-led growth and premiumisation. Additionally, to encourage consumer up trading, HUL has introduced pricing interventions by narrowing the gap between sachets and larger packs.

• Growth Outlook improves: Management remains optimistic about near-to-mid-term demand recovery, driven by improving urban sentiment amid easing inflation, policy support, and gradual rural revival supported by a favourable monsoon in FY26. HUL expects H1FY26 to outperform H2FY25, aided by stable commodity prices and low single-digit price growth, reinforcing confidence in a sustained recovery trajectory.

• Change in Leadership: HUL has announced a key leadership change with the cessation of Mr. Rohit Jawa as MD & CEO, effective close of business on July 31, 2025. Priya Nair, currently President – Beauty & Wellbeing at Unilever, will take over as MD & CEO from August 1, 2025. With her strong global credentials and deep understanding of the beauty and personal care space, Nair is well-positioned to lead HUL’s next phase of growth and strategic transformation.

Sector Outlook: Cautiously Positive

Company Outlook & Guidance: While management expects overall FMCG demand to remain stable and recent trends indicate initial signs of recovery in consumer sentiment, we maintain a cautious stance and prefer to await more sustained and meaningful signs of a broad-based revival.

Current Valuation: 52xMar’27 EPS (Earlier Valuation: 50xMar’27 EPS ).

Current TP: Rs 2,690/share (Earlier TP: Rs 2,515/share).

Recommendation: With a 7% upside from the CMP, we maintain our HOLD rating on the stock

Financial Performance: Hindustan Unilever Ltd. (HUL) reported a 4% volume growth in Q1FY26. Its revenue grew by only ~4% YoY to Rs 15,747 Cr, led by broad-based growth across categories. The company's gross margins declined by 226 bps YoY to 48.6%, primarily due to rising commodity costs, particularly in palm oil. EBITDA decreased by 1.3% YoY to Rs 3,558 Cr, with margins contracting by 117 bps YoY to 22.3%, partly offset by the reduction in ad spends (decline by 5.4% YoY). Reported PAT was up 8% YoY to Rs 2,732 Cr while Adj PAT before exceptional items stood at Rs 2,490 Cr, down by 3% YoY

Outlook

We expect near-term challenges are likely to improve with the improving macroeconomic conditions for the consumption space. These include – 1) The cyclical drag from urban slowdown, high CPI inflation and high RM prices will start to normalise, 2) Rural demand momentum picks up pace, aided by a good monsoon season expected in FY26, 3) Government tax incentives stimulate consumption and 4) Lower crude oil prices will give respite on raw material side. Also, HUL’s long-term growth prospects remain strong as management continues to focus on (1) Promoting a diversified portfolio and spreading the price-value matrix to drive premiumisation; (2) Continued focus on efficiency improvement – nanofactories, automation, and scaling Shikar to drive overall cost saving initiatives; and (3) Market development initiatives to gain market share across the portfolio. While management anticipates a gradual recovery in the coming quarters, supported by favourable macroeconomic indicators, we remain cautious and prefer to adopt a wait-and-watch approach and therefore maintain our HOLD rating on the stock.

Valuation & Recommendation

We expect HUL’s Sales/EBITDA/PAT to grow at a 6%/6%/6 % CAGR over FY24-27E. We maintain our recommendation stance to HOLD with a revised TP of Rs 2,690/share, with an upside of 7% from the CMP.

Segmental Performance

• Home Care: The Home Care segment posted 4% Underlying Sales Growth, underpinned by high-single digit volume growth. Pricing remained negative due to continued pass-through of lower commodity costs and efforts to maintain a competitive price-value proposition. Fabric Wash saw mid-single digit volume growth, led by Surf Excel, while Household Care recorded double-digit volume growth, driven by strong performance in the dishwash category. The liquids portfolio sustained its double-digit growth trajectory. On the innovation front, the company launched Surf Excel Matic Express, tailored for short wash cycles, and relaunched Vim Pro Clean Liquids with RhamnoTech technology to enhance kitchen hygiene and deliver superior cleaning performance.

• Beauty & Wellbeing- The Beauty & Wellbeing segment delivered 7% USG, led by mid-single digit growth in Hair Care and steady performance in Skin Care and Colour Cosmetics. OZiva stood out with 3x YoY growth, while the combined OZiva-Minimalist portfolio now forms a Rs1,000 crore digital-first business—part of a Rs3,000 crore portfolio growing over 25%. Minimalist reported strong doubledigit growth in its first integrated quarter. Continued innovation, digital engagement, and sharp brand execution remain key growth drivers, with offline expansion for OZiva planned in phases. Four synergy areas—R&D, supply chain, international expansion, and offline scale-up—are being actively pursued.

• Personal Care –The Personal Care segment delivered a 6% growth during the quarter, supported by price hikes in response to commodity cost inflation. Skin Cleansing grew in mid-single digits, led by strong double-digit growth in premium soap bars. Lifebuoy has seen a sequential improvement in performance, underpinned by the momentum of

• its recent relaunch effort. Bodywash sustained its double-digit growth momentum, reflecting continued traction in the premium hygiene category. Oral Care posted mid-single digit growth, driven by Closeup. The quarter also saw product refreshes across key brands — Liril was relaunched with upgraded packaging and formula, Dove introduced its Serum Bar enriched with Nutrient Serum, and Closeup was rolled out with an enhanced formulation and modernised packaging.

• Foods - The Foods & Refreshment segment reported 5% Underlying Sales Growth, driven by mid-single digit volume growth. Beverages delivered double-digit growth, with Tea registering high-single digit growth on the back of pricing based on replacement cost and volume gains, while Coffee sustained its strong double-digit momentum, led by pricing. Packaged Foods grew in mid-single digits, supported by robust performance in the Future Core and Market Makers portfolio. Ice Cream posted high-single digit volume-led growth, although overall momentum was impacted by the early onset of monsoons. Lifestyle Nutrition maintained category leadership and showed sequential improvement. Key launches during the quarter included Red Label Instant Spiced Tea Mix and Boost Protein, a targeted offering in the adult health drink segment

Other Concall Highlights

• Update on De-merger of Ice Cream Business: HUL has received stock exchange clearance for the proposed demerger of its Ice Cream business. Shareholder approval will be sought on 12th August 2025, with voting commencing from 7th August. The mirror demerger will grant one share of Quality Walls India Ltd. for every HUL share held. The move is expected to unlock value and offer shareholders direct participation in the Ice Cream business. Further, the de-merger process is on track and is expected to be completed by Q4FY26.

• Minimalist: HUL has completed the acquisition of a 90.5% stake in Minimalist for Rs 2,706 crore. Integration efforts are progressing across four synergy areas—R&D, supply chain, offline expansion, and global scaling. The brand continues to deliver strong doubledigit growth, reinforcing its potential within HUL’s premium beauty portfolio.

Key Risks to Our Estimates and TP

• Prolonged recovery in urban market, rural, raw material inflation, and an increase in competitive intensity

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