Shares of Hindustan Unilever fell 6% on Thursday after the company posted a 2.3% decline in consolidated net profit for the September 2024 quarter at Rs 2,595 crore compared to Rs 2,657 crore in the year-ago period.
HUL’s home care/beauty and welfare segment grew by 8.1% year-on-year, while its food and refreshment or personal care segment declined by 2.5%. The company rounded up mixed reactions from brokerages, citing concerns about increased volumes, recovery in demand and product portfolios across segments.
Nuvama Institutional Equities noted that Hindustan Unilever unexpectedly announced inline results for the entire second quarter of FY25. However, sales volume growth was only 3% compared to the previous year, lower than street expectations of 4-5%. “Gradual rural recovery and return of price increases in H225E/26E bodes well for HUL’s long-term growth trajectory,” the report said. The brokerage has given a buy rating on HUL with a target price increased to ₹3,395 from the previous ₹3,375.
-
Also read: F5 partners with Nvidia to improve performance of AI applications
Motilal Oswal reiterated Buy rating with a target price of ₹3,200. “Demand trends remain stable, with moderate growth in urban areas and steady recovery in rural areas,” Motilal analysts said. It is expected that the company’s diverse products will support a steady growth recovery. However, Motilal Oswal lowered his FY25 and FY26 EPS estimates by 2% each.
HUL continues to be HDFC Securities’ top pick among large-cap staples, with the worst receding in terms of slowing volume growth, price corrections and rural weakness. The brokerage maintains a buy rating on the stock with a target price of ₹3,200.
JM Financial, which assigned a buy rating with a revised target price of ₹2,870 from the previous ₹2,915, highlighted that moderation in urban markets was a negative surprise.
Amit Agarwal, senior vice president of fundamental research at Kotak Securities, said inflation in crude palm oil and tea is weighing on gross margins. Contrary to expectations, HUL’s competitive actions and new formulations of tea and soaps did not translate into higher volumes, but the home care and beauty segment was a bright spot in a weak quarter, he added.
Analysts at Yes Securities remain neutral on the HUL stock with a target price of ₹2,845. HUL’s second quarter results were in line with expectations. The report notes that lower underlying volume growth (UVG) in soap and tea was offset by low-single-digit UVG in fabric laundering and home care.
Analysts at Centrum Institutional Research maintained a ‘downgrade’ rating on HUL with a price target of ₹2,697. They expect a gradual recovery in discretionary spending and inherent distribution power to drive the beauty and health and GSK-CH businesses. However, given inflation cycles and high advertising costs, profit margins are likely to remain within a narrow range.
ice cream business
The FMCG giant also announced the separation of its ice cream business, which contributed 3% to its sales.
Nuvama emphasizes that the ice cream business is a high-growth business and believes that exiting it is not the best option.
HUL is the second strongest player in this “high investment, low profit business”. Ajay Thakur, research analyst at Anand Rathi Institutional Equities, said the spin-off of the ice cream business will have less impact on HUL’s earnings. He added that this sector requires a different supply chain and higher investment.
Thakur was positive about the growth volume in the beauty and wellness segment, highlighting that HUL’s second-quarter results were slightly below public expectations.
-
Also read: Indus Towers margins expected to increase in coming quarters on further site rollouts by VIL, BSNL: Analyst
“Given HUL’s decision to spin off its ice cream business, local capabilities will need to be developed to continue the business. Ice cream has a different operating model and a unique channel environment, and other ‘s synergies with HUL are limited,” said Kotak Securities’ Agarwal.
Global brokerage firm Jefferies maintains a “buy” rating on the stock with a price target of 3,130 ₹. Investec has given it a ‘hold’ rating with a price target of ₹2,837. JPMorgan maintained an overweight call on the stock with a revised price target of ₹2,870, while Morgan Stanley assigned an underweight call with a revised price target of ₹2,110.
HUL stock closed 5.81 per cent lower at ₹2,504.75 against the NSE. The share price fell 5.83% on the BSE to close at 2,502.95 pounds.