HUL Q3 Results Review: HDFC Securities Downgrades The Stock To 'Add', Lowers Target Price — Here's Why

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HDFC Securities Institutional Equities

Hindustan Unilever Ltd.’s Q3 FY25 results were below our estimates, as performance was subdued across segments except home care. It managed to show flat Ebitda, as it drastically cut down brand-building spends (down 8% YoY). The home care segment was an outlier and saw the second consecutive quarter of high single-digit volume growth, owing to management's focus on premiumization.

Persistent raw material inflation (palm oil) and the delayed winter season impacted soaps and skin care within the BPC segment, respectively, while downtrading (for tea) and muted consumption (malted food drinks) continued to affect the F&R segment.

Management remains cautiously optimistic about rural recovery and will focus on driving moderate margin expansion in the medium term, using its pillars of driving the core, premiumization trends, and investment in categories of tomorrow, along with channels and formats of the future.

We have cut our EPS estimates by 2-3% for FY26/FY27 and downgraded the stock to Add from Buy with a target price of Rs 2,650 (50 times FY27 EPS), as in the near term, volume/profitability growth remains challenging due to:

1. macro challenges in urban areas, which in turn will decelerate premiumization trends;

2. persistent inflation in palm oil and tea prices; and

3. increased competitive intensity in the high-margin beauty and well-being segment.

Despite near-term challenges, HUL trades at attractive valuations, i.e., 44 times FY27 EPS, almost 20% below its five-year average PE of 55 times.

We believe HUL could trade closer to its five-year average PE once confidence in volume growth delivery and profitability improves, which is contingent upon several macro factors.

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