The consensus among top brokerages remains largely positive on Hindustan Unilever Ltd., after the company posted its second quarter results yesterday. Names like Cti, Jefferies, and Goldman Sachs have maintained their 'buy' ratings, driven by the company's clear strategic focus on volume growth.
Jefferies leads with the highest target price hike to Rs 3,050, while Citi also raised its price target to Rs 3,000. Despite this, the market is factoring in short-term pain. Investec maintained a Hold with a marginally cut target price of Rs 2,610, and Morgan Stanley maintained an Equal-weight rating with a target of Rs 2,335, citing a slow recovery timeline.
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Short-Term Headwinds and Price Action
The quarter two results were significantly impacted by a transitory trade destocking across the supply chain, as distributors held back purchases in anticipation of the Goods and Services Tax rate cuts. Management estimated this led to a substantial 200 basis points drag on growth.
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Jefferies noted this Q2 impact, which is expected to continue into quarter three, will likely disappoint investors with a short-term orientation. Goldman Sachs, while maintaining Buy, cut its Earnings Per Share estimates to factor in a slower, more gradual recovery pace anticipated for the second half of the financial year.
Strategic Focus and Growth Drivers
HUL's new Chief Executive Officer, Priya Nair has made volume-led revenue growth the top priority, which is a strategic obsession that Jefferies and Citi believe will yield positive results over the medium term. Citi projects an 8% revenue and 9% earnings per share CAGR over financial year 2025–2028.
Further, the ice cream business demerger provides a structural tailwind. Morgan Stanley sees this move adding 50 to 60 bps to overall margins, raising HUL's guidance to 22% to 23%. The listing of the ice cream business is anticipated to occur in quarter four.
Morgan Stanley also highlighted that while demand across rural and urban markets remains stable, returning the trade pipeline to typical levels will take a few months, with price growth expected to remain in the low single-digits in the second half. Investec's cautious view suggests that the current soft growth momentum and the slow pace of recovery do not yet warrant a re-rating from current market multiples.
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