Hindustan Unilever targets better FY27 growth amid commodity-led margin pressure
Hindustan Unilever Ltd.
HOLD
₹2,025
₹1,995
₹2,195
8.40%
Investment View and Valuation
ICICI Securities retained its HOLD recommendation on Hindustan Unilever Ltd. (HUL) following a Q1 FY27 miss. Management has retained its guidance for better growth in FY27 than FY26. The broker revised its target price to Rs 2,195, based on 41 times FY28E EPS of Rs 53.5. At the report CMP of Rs 2,025, the target implies 8 per cent upside.
The broker broadly maintained its FY27E and FY28E earnings estimates. FY27E revenue was raised 0.3 per cent to Rs 70,070.5 crore and FY27E EPS was broadly unchanged at Rs 46.5. FY28E EBITDA and EPS were reduced 1.8 per cent and 1.3 per cent, respectively, to Rs 17,950.6 crore and Rs 53.5.
Q1 FY27 Financial Performance
HUL reported Q1 FY27 consolidated revenue of Rs 17,341 crore, up 10.1 per cent year on year and 6.1 per cent sequentially. Growth comprised 5 per cent volume growth and 5 per cent realisation growth. Operating profit increased 8.4 per cent year on year to Rs 3,947 crore, while adjusted PAT rose 9.3 per cent to Rs 2,731 crore, aided by lower interest costs. Reported PAT declined 2.2 per cent to Rs 2,680 crore because of exceptional items.
| Q1 FY27 metric | Performance |
|---|---|
| Revenue | Rs 17,341 crore; up 10.1% year on year and 6.1% sequentially |
| Volume growth | 5% |
| Realisation growth | 5% |
| Operating profit | Rs 3,947 crore; up 8.4% year on year |
| Adjusted PAT | Rs 2,731 crore; up 9.3% year on year |
| Reported PAT | Rs 2,680 crore; down 2.2% year on year |
| Gross margin | 49.5%; down 79 basis points year on year |
| EBITDA margin | 22.8%; down 34 basis points year on year |
Commodity inflation remained the key pressure, with overall raw-material cost inflation at 10 per cent. Advertising and promotion expense rose 3.7 per cent and represented 9.6 per cent of revenue.
Segment Performance
| Segment | Revenue growth | Q1 FY27 revenue | Volume and margin highlights |
|---|---|---|---|
| Home Care | 13.4% year on year | Rs 6,554 crore | High-single-digit volume growth, pricing and product mix; segment margin fell 219 basis points to 17.3% due to commodity-cost inflation |
| Beauty and Wellbeing | 12.4% year on year | Rs 4,083 crore | High-single-digit volume growth and scale-up of businesses including Minimalist; EBIT margin stable at 27.6% |
| Personal Care | 3.3% year on year | Rs 2,624 crore | Volumes declined at a low-single-digit rate as palm-oil inflation and price hikes affected soaps |
| Foods and Refreshments | 6.8% year on year | Rs 3,480 crore | Mid-single-digit volume growth; margin expanded 120 basis points to 19.9%. Boost surpassed Rs 1,000 crore revenue, while coffee, RTD products and Bru Gold continued to scale up |
Demand and Growth Outlook
Management said FMCG demand remained stable in both rural and urban markets, with rural demand improving sequentially. It attributed the moderation in company volume growth from 6 per cent in Q4 FY26 to 5 per cent in Q1 FY27 mainly to lower soap and branded-tea volumes.
Management expects better FY27 growth than FY26, when volume growth was 4 per cent. The outlook is supported by premiumisation, channel expansion and portfolio initiatives. Its Power Moves strategy focuses on high-growth, low-penetration categories, market development, route-to-market transformation, specialist channels and premiumisation.
Portfolio expansion is expected through extending core brands into adjacent categories, introducing global Unilever brands in India and scaling acquired brands including Minimalist, Simple and Oziva. Quick commerce grew approximately 40-50 per cent during the quarter, helped by improved availability and assortment.
Margin Outlook and Management Initiatives
Management retained its EBITDA margin guidance of 22.5-23.5 per cent. It expects to protect margins through calibrated price hikes, grammage reductions, procurement efficiencies, structural savings and AI-led productivity initiatives.
ICICI Securities expects margin to remain at the lower end of the guided range in H1 FY27, with potential improvement in H2 FY27 depending on geopolitical stability and commodity prices. The broker expects domestic volume growth to remain in the mid-single digits unless soaps recover materially.
Key Risks
- A sustained slowdown in consumer demand.
- Higher input prices, including continued commodity inflation.
- Increased competition in key categories.
Disclaimer: This is a summary of a research report published by the broker/research house identified above. The views, recommendations, target prices and estimates are those of the respective broker and do not represent DSIJ investment advice. The summary may be AI-assisted, hence please refer to the original report for complete details, disclosures and risks.
