Synopsis: Historical Outperformance of HUL shares despite muted sales CAGR (6%) from FY14-FY20, HUL outperformed in Ebitda due to margin expansion. Q2FY25 Results, HUL posted a 3% volume growth, below expectations; margins are likely to remain stable. Analysts’ View, EPS estimates trimmed; 'Hold' and 'Buy' ratings with revised target prices (Nirmal Bang at Rs. 2,805; Emkay at Rs. 3,225).
Hindustan Unilever Ltd (HUL) has long been a bellwether in India’s fast-moving consumer goods (FMCG) sector.
However, recent developments suggest that its earnings recovery might take longer than anticipated.
HUL’s historical outperformance, particularly from FY14 to FY20, saw a compound annual growth rate (CAGR) of 13% in earnings before interest, taxes, depreciation, and amortization (Ebitda) despite muted sales growth of 6%.
This outperformance was driven by a sharp increase in Ebitda margins, which expanded from 16% in FY14 to 24.8% in FY20, making it a standout performer in the market.
Q2 Results and Market Reactions:
For the quarter ended September 2024 (Q2FY25), HUL reported a volume growth of 3%, falling short of analyst expectations of 5%.
The company has indicated that there is no immediate acceleration in demand expected, and margins are likely to remain stable in the coming quarters.
Several analysts have revised their earnings per share (EPS) estimates downwards, with brokerages like Nirmal Bang cutting forecasts for FY25 and FY26 by 1.5-3.5%.
While the company’s Home Care and Beauty & Wellbeing segments have shown resilience, inflationary pressures, especially in raw material costs, have weighed on other segments.
Analysts from Emkay Global and Motilal Oswal Financial Services (MOFSL) have adjusted their earnings estimates, highlighting concerns over near-term growth but maintaining optimism for long-term opportunities.
Analysts’ Recommendations:
- Nirmal Bang maintained a ‘Hold’ rating on HUL with a revised target price of Rs. 2,805, slightly lower than its previous target of Rs. 2,875.
- Emkay Global reiterated a ‘Buy’ rating but reduced its target price to Rs. 3,225 from Rs. 3,400, citing near-term pressures but expecting strong business execution in the long run.
- MOFSL also retained a ‘Buy’ rating with a target price of Rs. 3,200, driven by confidence in HUL’s wide product portfolio and market leadership in key categories.
In conclusion, HUL remains a resilient player with a strong presence across price segments, making it a formidable long-term investment.
However, with raw material cost pressures and subdued near-term demand, analysts suggest that investors should brace for modest growth in the coming quarters.
Depending on your investment horizon, holding or buying HUL shares with a long-term perspective may still prove beneficial.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Always consult with a certified financial advisor before making any investment decisions.
