Target: ₹3,000
CMP: ₹2,221.50
With revenue down 0.2 per cent (vs. the Street’s estimated 2.2 per cent rise) and volumes up only 2 per cent (3 per cent), Hindustan Unilever’s Q4 belied expectations. Subdued rural demand, price cuts in mass soap (for a better price-value equation) and keen competition from smaller manufacturers (tea, detergent bars, etc.) hit Q4.
The premium portfolio, though, is strong. It retained a 200 bps corporate market share gained in the last 2-3 years (inflationary period) despite the competitive onslaught. We believe the behemoth is being re-imagined under Rohit Jawa’s leadership, amid a muted macro context. Thus, we are optimistic about better growth in FY25, but expect it to be more gradual.
The termination of GSK consignment-selling agreement is expected to dent EBITDA margin 50- 60bps in coming quarters. Management, though, indicated bulking up gross margins to FY20 levels (or adding 270bps), while continuing to invest in brands (keener competition and for premiumisation/innovation).
We retain our Buy with a lower 12-month target price of ₹3,000 (₹3,020 earlier), 55x FY26e EPS, 35 per cent potential.
Key risks: Sharp rise in input costs, price-based competition, loss of market share to new/smaller manufacturer