HUL Q3 Review: Target Price Slashed As Tepid Demand Weighs Near-Term Growth Outlook

Hindustan Unilever Ltd.'s target prices were cut by multiple brokerage firms due to subdued demand, raising concerns about its near-term performance. This comes on top of challenges for the consumer giant, whose recent profit was inflated by one-time gains.

The Indian unit of Unilever Plc posted an 18.9% year-on-year growth in net profit to Rs 2,984 crore in the quarter ended December. This growth was primarily driven by profits from the divestment of the 'Pureit' business. The profit before exceptional items remained flat.

The tepid demand trends impact the near-term growth outlook, according to analysts at Citi Research. Further, commentary around demand outlook moderating is the "key near-term negative surprise," it said.

While macros likely remain challenging, the consumer firm's strategic initiatives across categories could drive growth over the medium-term, according to Citi. The brokerage cut fiscal 2025-27 earnings estimates by 2-6% as it lowered revenue growth assumptions.

While cautious on near-term demand, Macquarie does not expect deterioration from the flattish volumes seen in the third quarter. "Believe that worst of volume weakness is likely behind us." The gradual pace of demand recovery drives cuts to earnings per share and target price, Macquarie said.

Hindustan Unilever posted flat underlying volume growth versus 3% in the preceding three months. Volumes were impacted mainly due to negative mix, with small packs growing ahead of large packs, partially offset by the secular trend of premiumisation.

Goldman Sachs also echoed the view that the near-term growth outlook is weak. "Urban slowdown has worsened," and management lowered its outlook citing "moderating consumption environment."

However, the acquisition of the Minimalist brand is likely to be a tailwind for the consumer giant, according to analysts. Acquisition of an active-based brand could be an incremental growth driver, Citi said.

HUL will acquire a 90.5% stake in Minimalist through secondary buyouts at a pre-money enterprise value of Rs 2,955 crore and primary infusion. The transaction is expected to close in the June quarter.

Twenty-seven of the 43 analysts tracking the company have a 'buy' rating on the stock, 13 suggest a 'hold' and three have a 'sell', according to Bloomberg data. The average of 12-month analysts' price target implies a potential upside of 15%.

Macquarie

• Maintained 'outperform' rating on the stock and lowered the target price to Rs 2,800 apiece from Rs 3,250.

• Third-quarter results were in line, but the firm remains cautious on near-term demand.

• Expects no further deterioration from the flattish volumes observed in Q3.

• Highlights positive tailwinds for the beauty segment from the acquisition of the Minimalist brand.

• Cuts earnings per share estimates and target price due to the gradual pace of demand recovery but believes the worst of the volume weakness is likely behind.

UBS

• Maintained a 'neutral' rating on the stock and cut the target price to Rs 2,700 apiece from Rs 2,800 per share.

• Notes lackluster performance, with revenue growth broadly in line but weak product mix impacting underlying volume growth.

• Observes volume-led growth in home care, while personal care is impacted by price hikes.

• Anticipates near-term demand to remain soft.

Goldman Sachs

• Maintained a 'neutral' rating on the stock and lowered the target price to Rs 2,480 apiece from Rs 2,650.

• Reports weak near-term growth outlook, with urban slowdown worsening and downtrading to smaller packs underway.

• Notes a decline in soap volumes driven by high price increases and grammage cuts.

• Management has lowered its near-term outlook from a 'stable demand environment' to a 'moderating consumption environment.'

Citi

• Maintained a 'buy' rating on the stock and reduces the target price to Rs 2,850 apiece from Rs 3,400.

• Cites tepid demand trends impacting the near-term growth outlook.

• Highlights the acquisition of the Minimalist brand as a potential incremental growth driver.

• Cuts fiscal 2025-2027 earnings estimates by 2-6%, due to lower revenue growth assumptions.