Hindustan Unilever Share Price Target at Rs 2,601: Prabhudas Lilladher Suggests Accumulate Call
Prabhudas Lilladher has reaffirmed its 'Accumulate' rating on Hindustan Unilever Ltd (HUL), adjusting the target price to Rs 2,601. The firm expects a subdued near-term performance given the company's lowered margin guidance, persistent commodity inflation, and muted urban demand. However, strategic investments in product innovation, premiumization efforts, and a focus on rural markets position HUL well for a medium-term recovery. Despite trimming FY26 and FY27 earnings estimates by 3%, the house sees potential upside as margin recovery and demand revival materialize by the second half of FY26.
HUL Lowers Near-Term Margin Outlook Amidst Inflationary Headwinds
In a cautious move, HUL has revised its near-term EBITDA margin guidance to 22–23%, compared to the earlier band of 23–24%.
The company anticipates margin recovery only post-H1FY26, contingent upon commodity price stabilization and higher operating leverage.
EPS estimates for FY26 and FY27 have been lowered by 3.1% and 3%, respectively.
Margin assumptions are revised to 22.7% in FY26 and 23.3% in FY27.
Prabhudas Lilladher notes that increased investments in advertising, distribution, and new product launches will weigh on margins but should drive stronger top-line growth over time.
Mixed Q4FY25 Performance with Modest Volume Growth
For Q4FY25, HUL posted:
Net sales of Rs 152.1 billion, marking a 2.4% YoY increase.
Volume growth of 2% YoY, slightly ahead of expectations.
Gross margin contraction of 139bps YoY to 50.5%.
EBITDA growth of just 0.9% YoY to Rs 34.7 billion.
Adjusted PAT rose 4.2% YoY to Rs 25 billion.
Margins in Home Care and Food & Refreshment segments were notably weak, impacting overall profitability.
Segment-Wise Performance Highlights
A detailed look into business segments reveals:
Home Care: Revenue grew 1.8% YoY but EBIT declined 2.3% YoY. Margins contracted by 76bps YoY.
Personal Care: Revenue increased 3% YoY with EBIT rising 5.7% YoY. Margins expanded by 47bps.
Beauty & Wellbeing: Revenue rose 4.2% YoY; EBIT surged 13.1% YoY, reflecting margin expansion of 317bps.
Foods & Refreshment: Revenue declined 0.4% YoY and EBIT fell 15.2% YoY. Volumes dipped amid category-specific headwinds.
Financial Forecasts and Key Metrics
Prabhudas Lilladher revised their financial estimates for FY26 and FY27:
| Metric | FY26E | FY27E |
|---|---|---|
| Sales (Rs million) | 6,59,635 | 7,13,724 |
| EBITDA (Rs million) | 1,49,848 | 1,66,320 |
| EBITDA Margin (%) | 22.7% | 23.3% |
| EPS (Rs) | 45.0 | 49.3 |
| Revenue CAGR (FY25–FY27E) | 7.8% | |
| EPS CAGR (FY25–FY27E) | 6.4% | |
| Target PE Multiple (FY27E) | 52.8x | |
Despite muted growth in FY26, a stronger 9.5% EPS growth is projected for FY27, supporting the valuation thesis.
Stock Levels and Investment Strategy
Current Market Price (CMP): Rs 2,325
Target Price (TP): Rs 2,601
Upside Potential: ~12%
Support levels are at Rs 2,280 and Rs 2,200, while key resistance lies at Rs 2,600 and Rs 2,670.
Accumulation is recommended on dips below Rs 2,300, positioning for gains as margins and demand recover from FY26 onwards.
Concall Takeaways: Strategic Updates
Management highlighted several crucial themes:
1. Demand Trends:
Urban demand remains weak, but rural resilience continues.
2. Inflation Dynamics:
Commodity inflation, especially in palm oil and tea, persists, impacting gross margins.
3. Price Actions:
A 3% portfolio-wide price hike is planned for FY26, depending on inflation stabilization.
4. Structural Moves:
Ice Cream business demerger is progressing and expected by FY26-end.
5. Premiumization:
Continues but at a slower pace compared to FY24; premium offerings in Beauty & Wellbeing showing encouraging traction.
Key Risks to Monitor
Several risks could derail near-term performance:
1. Persistent Commodity Inflation:
Unrelenting cost pressures in palm oil and tea could further dent margins.
2. Urban Demand Slack:
Prolonged consumption slowdown in urban markets would delay revenue and margin recovery.
3. Execution Challenges:
Success of portfolio transformation towards premium and future-core products remains critical.
Long Term View
Despite short-term hurdles, Hindustan Unilever’s strategic investments, portfolio premiumization, and deep distribution strength position it well for a meaningful rebound from the second half of FY26.
Prabhudas Lilladher maintains an "Accumulate" rating with a target price of Rs 2,601, citing strong long-term fundamentals amid temporary earnings pressures. Investors with a medium- to long-term horizon should consider gradual accumulation.
