HUL share price drops 4% to 8-month low as analysts trim target price post Q3 results

Shares of FMCG major Hindustan Unilever (HUL) tumbled nearly 4% in early morning trade on Thursday, January 23, to an 8-month low of ₹2,254 apiece. This decline followed the company's indication that the moderation in the consumption goods market is likely to persist after it reported a 2% year-on-year (YoY) increase in sales for the quarter ended December 2024.

Barring the Home Care segment, the company reported a drop in UVG (Underlying Volume Growth) across all three segments: Beauty and Wellbeing, Personal Care, and Foods. Revenue stood at ₹15,195 crore, compared to ₹14,928 crore in Q3FY24, with EBITDA margins dropping by 20 basis points YoY to 23.5%. 

The net profit came in at ₹3,001 crore in Q3FY25, reflecting a 19% growth compared to Q3FY24, driven by profit from the divestment of the Pureit business. However, profit after tax, excluding exceptional items, remained flat at ₹2,540 crore. 

Analysts cut target price on stock post Q3 numbers 

Following the company's tepid performance, brokerage firms trimmed their target price on the stock, citing challenges in the near term amid a slowdown in urban consumer demand.

Domestic brokerage firm Nuvama cut its target price on the stock to ₹3,225 per share from ₹3,395 earlier while maintaining its 'Buy' rating. The brokerage noted that volume growth was below expectations, and overall performance was in line with estimates. Given the current raw material inflation, it has reduced its FY25E, FY26E, and FY27E EPS estimates by 3%, 5%, and 5%, respectively.

Similarly, Investec maintained its 'Hold' rating on the stock, trimming its target price to ₹2,643 from ₹2,654. It highlighted that no near-term recovery is on the cards, with near-term growth outcomes remaining challenging for HUL.

Investec noted HUL’s intent to pursue the inorganic route with the Minimalist acquisition, which is expected to contribute less than 1% to FY26E sales. The brokerage believes visible triggers for improving revenue growth will drive earnings, valuations, and stock price movement from current levels.

Global brokerage firm CLSA also cut its target price for HUL to ₹1,924 per share while maintaining its 'Underperform' rating. CLSA cited weak growth and lower margins in Q3, with three out of four segments witnessing a decline in UVG (Underlying Volume Growth).

It trimmed the EPS estimates by 4-6% for FY25-27, noting that margins are expected to weaken, especially in the Beauty & Wellness segment, as growth becomes a focus.

Goldman Sachs maintained its 'Neutral' call with a target price of ₹2,480 per share, stating that Q3 results fell below estimates due to weak volume and EBITDA growth. It highlighted an urban slowdown, with downtrading to smaller packs underway. Soap volumes declined due to high price increases and grammage cuts. Despite low ad spending, the EBITDA margin was lower year-on-year.

Regarding the Minimalist acquisition, the brokerage assessed the deal at 6x EV/sales and found the valuation fair, given its profitability, synergy, and complementary fit. It also observed a positive pricing trend after many quarters, with pricing turning positive by 2%.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.