HUL Q2 Results Review - Muted Urban Demand, Lower Pricing Cut Growth; Maintain 'Reduce': Centrum

Centrum Broking Report

Hindustan Unilever Ltd.’s Q2 FY25 print was in-line with our estimates; Revenue grew 1.5%, backed by 3% volume growth, while Ebitda/adjusted profit after tax declined by 1.3%/3.5%. Given slowdown in urban consumption along with gradual recovery in rural lead to muted Q2. Home Care and Beauty and Wellbeing (60% of business) grew HSD backed by mid-to-high single digit volume growth, while Personal care and F&R declined by 5%/1.4% YoY.

Rising competitive intensity in alternate channel and promotion activity in GT cut down gross margins to 51.0% (-169 bp). Despite lower ad-spends (-14.9%), higher other expenses/staff cost +5.5%/+8.1% cut Ebitda by 1.3%, settling Ebitda margin at 23.5% (-66bp) YoY.

Considering pace of inflation HUL expects low-single digit pricing growth in H2 FY25. We expects margins improvement to be led by premium mix, judicious price hikes and operating leverage despite increase in media spends.

We remain cautiously optimistic expecting LSD volume growth as near term operating environment continue to be competitive. Further to sharpen focus on core business, HUL decided to separate Ice Cream business.

We cut earnings and retain Reduce rating, with a revised DCF-based revised target price of Rs 2,697 (implying 56.0 times Sept’27E earnings per share).

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