HUL shares fall as much as 4% despite in-line Q3 results; most brokerages reduce their target

Shares of FMCG major Hindustan Unilever (HUL) in Thursday’s session fell as much as 4 per cent in early trade, becoming the top loser for Nifty due to weak management commentary. Around 9:35 am, the stock was trading down over 2 per cent or Rs 48.45 at Rs 2,294.5 a piece on the NSE.

For the December quarter, HUL reported largely in line results with standalone profit in the reviewed quarter beating estimates on the back of a bumper gain of Rs 509 crore. Analysts, however, expect that the company’s announcement beyond the results could provide support for the stock.

Standalone profit for the quarter under review stood at Rs 3,001 crore, against Zee Business’ estimates of Rs 2,556 crore. In Q3FY24, the company’s PAT was Rs 2,519 crore. Revenue, however, lagged estimates but recorded a growth of 1.4 per cent year-on-year at Rs 15,408 crore compared to Rs 15,188 crore in the same period last year.

Operationally, the diversified FMCG company posted an EBITDA of Rs 3,570 crore compared to Rs 3,540 crore in the same period of the previous year. The EBITDA margin also recorded a decline of 10 basis points and stood at 23.2 percent, compared to 23.3 percent in the corresponding period of the previous year.

Underlying volume growth also remained stable in the quarter under review, compared to an estimated growth of 1 percent.

HUL Management Commentary

The company’s management, on the sidelines of releasing third quarter FY25 results, said it expects the moderation in consumer sentiment to continue and that if commodity prices remain stable, sub-single digit price growth is expected. Furthermore, he added that EBITDA would likely be maintained at the lower end of our range of 23 to 24 percent.

How do global brokerages view HUL’s Q3 results?

Citi maintained its ‘buy’ rating on the scrip, but with a reduced target of Rs 2,850. Earlier, the brokerage had set HUL’s target at Rs 3,400. Going by tepid demand trends in the sector brokerage, they will weigh on the short-term growth prospects of the FMCG company. Additionally, the brokerage is considering the acquisition of Minimalist to fill the gaps in the beauty segment. Given the headwinds, the foreign brokerage has cut its earnings estimates for FY25-27 by 2-6%.

Goldman Sachs, meanwhile, maintained its ‘neutral’ stance on the market with the target reduced to Rs 2,480 from Rs 2,650 per share earlier. According to the brokerage, the company’s third quarter was below estimates in terms of EBITDA as well as volume growth. Additionally, the brokerage noted that the company’s management had previously lowered its short-term outlook from a stable environment to a moderate consumption environment. Additionally, the brokerage highlighted that the urban slowdown has worsened, with a decline in trade towards small packages underway.

Macquarie also reiterated its previous call for ‘outperform’ on the stock with a target of Rs 2,800. The brokerage expects a tailwind in the beauty segment following the acquisition of the Minimalist brand. Furthermore, he added that the gradual pace of the company’s recovery results in a reduction in both EPS and target price. Furthermore, the brokerage believes that the worst volume weakness is likely behind us.