Hindustan Unilever shares tumble 6%; brokerages divided as Q2 results miss street estimates

Shares of Hindustan Unilever tumbled 6 per cent on Thursday after 2.3 per cent decline in its consolidated net profit at ₹2,595 crore in September 2024 quarter as against ₹2,657 crore in the corresponding quarter last year.

HUL’s home care/ beauty and well-being segments grew 8/1 per cent y-o-y, while foods & refreshment or personal care decreased 2/5 per cent. Company bagged mixed responses from brokerages as they flagged concerns about volume growth, demand recovery and product portfolio across segments. 

Nuvama Institutional Equities mentioned Hindustan Unilever has posted an overall in-line Q2 FY25 against its estimates. However, the volume growth was at 3 per cent y-o-y, below street’s forecast of 4-5 per cent. “A gradual rural recovery along with pricing growth coming back in H2FY25E/26E bodes well for HUL’s long-term growth trajectory,” it said. The brokerage has given buy rating on HUL at an increased target price of ₹3,395 against ₹3,375 earlier.

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Motilal Oswal has reiterated buy rating at a target price of ₹3,200. “Demand trends remained stable, with moderate growth in urban areas and a stable recovery in rural regions,” Motilal analysts said. Diverse product basked is expected to support steady growth recovery. However, Motilal Oswal has cut EPS estimates by 2 per cent each for FY25 and FY26.

HUL remains HDFC Securities’ top pick within the large-cap staples pack, as the worst is behind in terms of muted volume growth, pricing corrections, and rural weakness. The brokerage has maintained buy rating at a target price of ₹3,200.

JM Financial, which has assigned buy rating at a revised target price of ₹2,870 from ₹2,915 earlier, emphasised the moderation in urban market has come as a negative surprise.

Amit Agarwal, Senior VP – Fundamental Research, Kotak Securities, stated that the inflation in crude palm oil and tea weighed on gross margins. Against expectations, HUL’s competitive actions or new formulation in tea and soaps did not translate into volume growth, while home care and beauty segments were the bright spots in an otherwise tepid quarter, he added.

Analysts of Yes Securities have maintained neutral stance on HUL stock at a target price of ₹2,845. HUL’s Q2 results were in-line with their estimates. Underlying volume growth (UVG) decline in soaps and tea was offset by high-single-digit UVG in fabric wash & household care, the report read.

Analysts of Centrum Institutional Research have retained ‘reduce’ rating on HUL at a target price of ₹2,697. They expect gradual recovery in the discretionary spends and inherent distribution strength to drive beauty & well-being, and GSK-CH business. Though margins could remain in tight band, given inflationary cycle and high ad-spends.

Ice cream business

The FMCG major also announced separation of its ice cream business, which contributed 3 per cent to the company’s turnover.

Nuvama believes that exiting ice cream business is not the best option emphasising it as a high-growth business.

HUL is the second strong player in this “high investment and low-margin business”. Separating ice cream business will have a lesser impact on HUL’s earnings, according to Ajay Thakur, Research Analyst, Anand Rathi Institutional Equities. He added that the segment demands a different supply chain and higher investment.

Thakur, positive about growth volume of beauty and wellness segment, stressed that HUL Q2 performance was slightly lower than the street expectations.

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“Given that HUL has decided to separate its ice cream business, local capabilities will need to be developed to continue running the business. Ice cream has a different operating model and a distinct channel landscape, limiting synergies with rest of HUL,” Agarwal of Kotak Securities said.

Global brokerage Jefferies has maintained ‘buy’ at a target price of ₹3,130. Investec has given ‘hold’ rating at a target price of ₹2,837. JP Morgan has maintained an overweight call at a revised target price of ₹2,870, while Morgan Stanley assigned underweight at a target price of ₹2,110.

HUL shares closed 5.81 per cent lower on the NSE at ₹2,504.75. The stock declined 5.83 per cent on the BSE to close at ₹2,502.95.