HUL Q2 Results Review: Urban Demand Woes, Pricing Pressures Drag Earnings Projection Lower

Hindustan Unilever Ltd.'s second quarter performance has analysts flagging concerns over tapering urban demand and competition pressures in the personal care and food and refreshments categories.

The consolidated net profit of India's largest consumer goods maker fell 2.3% year-on-year to Rs 2,595 crore in the quarter-ended Sept. 30, 2024. That compares with the Rs 2,693-crore consensus estimate of analysts tracked by Bloomberg. Revenue rose 2% to Rs 15,926 crore, better than the estimate of Rs 15,753 crore.

HUL, while logging an Ebitda margin of 23.8%, reported a 2% climb in underlying sales and a 3% increase in underlying volume growth in the September quarter.

Morgan Stanley said urban slowdown hit headline volume growth, while personal care and food and refreshments categories remain overhang to growth. It sees low single-digit price growth in the third quarter at current levels of inflation in tea and palm oil.

According to Jefferies, current demand trends are likely to continue in the near-term, except for some boost from product pricing.

Investec trimmed its three-year forward earnings projection by 1.3-2.4%, factoring lower revenue growth and margin delivery in the near and medium term. It expects improved revenue growth trend, driven by pricing growth, while projecting volume growth will not exceed 4-5% in coming quarters.

The HUL management expects volume growth to surpass value growth in coming quarters, while it keeps focus on volume-led growth to drive competition. The company might take low-single digit price growth and sees recovery in rural demand moving ahead.

Such incremental price hikes, specifically in tea and soaps, should drive low-single digit pricing growth in the second half of the year, said Citi Research. It reduced its three-year forward earnings estimates of HUL by 2-4%.