HUL Q1 Result Review - Rural Demand Positive; Medium-Term Outlook Promising: Motilal Oswal

Motilal Oswal Report

Hindustan Unilever Ltd.’s Q1 FY24 performance fell slightly short of our expectations. During the quarter, volumes grew 3% YoY versus expectation of 7% growth, as higher inflation is adversely impacting consumer spending.

In Q1 FY24, rural market delivered volume growth. While we expect this momentum to continue; however weather patterns remain a critical factor to monitor.

HUL is normalising advertising and promotion spends to revive volume and bring it back to pre-Covid levels, which represents 9.8% of sales.

Management mentioned about funnelling the gross margin expansion towards ad spends to drive volume growth. However, the 120 basis points YoY increase in ‘other expenses’ is due to a step-up in investments, the impact of new royalty incentives, and favorable benefits in the base quarter.

The outlook for HUL remains balanced with lower commodity costs and gradual recovery in rural demand offset by reduced leverage on pricing and increased competition from smaller players in some categories.

We reiterate our 'Buy' rating with a target price of Rs 3,100.

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