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Prabhudas Lilladher Report
We cut Hindustan Unilever Ltd.'s FY25/26 earnings per share by 1.6/1.3% factoring in-
slower than expected recovery in volumes in rural India,
price cuts in personal wash and skin care to improve consumer price value equation,
sustained competitive intensity across mass segment in HPC segment resulting in market share loss and
higher investments in advertising and promotion and innovations to sustain LT growth.
While home care, food and refreshment and and beauty segment are doing well across channels, price correction in soaps and skin should provide growth push from H2 FY25, in our view.
We believe normal monsoon can provide flip to rural demand although margin expansion from current levels will be very moderate (50 bps over FY24-26).
Long-term growth levers led by higher growth in E-com and categories of future (liquids, Green Tea, premium skincare etc.) and premium segments remains intact, we estimate 8% profit after tax compound annual growth rate over FY24-26 and assign discounted cash flow based target price of Rs 2543 (Rs 2600 earlier).
Risk reward looks favorable post little returns in last four years; however, significant re-rating looks unlikely given valuations at 44.6 times FY26 and market momentum in favor of cyclicals.
We upgrade the stock to Accumulate (Hold earlier) for moderate returns over next 12-15 months.
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