Gross margin decline of 140 basis points YoY to 50.5% was largely due to price hikes in soaps and tea lagging input-cost inflation in palm oil/ tea/ coffee; HUL indicated no further price cuts in Home Care, but expects GPMs to moderate near-term due to a persistent pricing-inflation gap.
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Systematix Report
While Hindustan Unilever Ltd.'s volume pickup in key categories of detergents, dishwash, hair care, oral care and premium skin is encouraging, we remain cautious on persistent weakness in soaps, tea, mass skin and nutrition drinks.
We expect a gradual pickup in volume growth over FY26E-FY27E as HUL rejigs its portfolio to expand into high-growth categories (laundry/dishwash liquids, bodywash, international foods, high-science products in nutrition) and launches new product innovations to extract growth in portfolio gaps.
Realizations should benefit from-
higher pricing in soaps and tea,
normalization in detergents/ other categories and
improving product mix/premiumization.
However, with near/medium-term margin outlook moderated in return for (expected) growth revival, we remain cautious on the stock.
We lower our FY26E-FY27E revenue estimates by c.2% but EPS estimates by a steeper c.10-11% to factor in the sharply lower operating profit margin outlook; we build revenue/PAT CAGR of 8%/6% over FY25-FY27E.
We maintain our Hold rating; we roll forward valuation to March-2027 (from December-2026) and value the stock at P/E of 49x (unchanged, a 15% discount to its long-period average to account for ongoing sluggish demand across key categories coupled with weaker margin outlook), leading to a lower target price of Rs 2,410 (versus Rs 2,645 earlier).
We await signs of improving outlook in areas of concern as well as stable margin trajectory before turning positive. Stock trades at P/E of 52x/47x on FY26E/FY27E EPS.
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