HUL shares at PE of 59x worth a look? Analysts say stock trades at expensive valuations, cut target prices

Hindustan Unilever (HUL) Ltd reported a tepid set of numbers for the December quarter, following which a few analysts asked whether the prevailing stock valuation are justified. Nirmal Bang Institutional Equities said that following the June quarter results it felt that FY24 would be the third consecutive year of relatively lower earnings per share compared to mid-teens growth of the past. "Now, there appears to be a risk that FY25E EPS growth could be muted as well, it said.

Analysts said while HUL's Q3 results were in line with low expectations, outlook was cautious with volume likely to recover more gradually than earlier expectations -- especially with market share gains getting delayed, and slower recovery in realisation and product mix growth.

"There is 5 per cent downward revision in our FY25E/FY26E EPS as the uncertain pace of rural recovery, delay in resumption of market share gain, increasing competitive intensity and higher investments (to boost medium term growth) are likely to keep earnings growth muted. Hindustan Unilever is currently trading at expensive multiples of 54 times FY25E EPS. Even as we remain structurally positive about the company’s medium term earnings growth prospects, near term upside is limited," Nirmal Bang said.

The stock traded at 58.81 times its trailing 12-month earnings per share, as per BSE.

This brokerage maintain ‘Accumulate’ on the stock with a revised target of Rs 2,670 against Rs 2,700 earlier, as it rolled forward its estimates to value the company at 50 times December 2025 EPS.

Emkay Global also cut its target on the stock to Rs 2,700 from Rs 2,800 as it believes that the demand slowdown, competitive pressure, distribution stress, and rising royalty rates are likely to have an overhang on HUL's valuations.

"The management commentary on demand setting remains unexciting, as demand recovery remains a hope on the emergence of tailwinds. Reinforcing general trade moat is now an added pressure, with changes in distributor margin structure, in our view. Q3 results stood 3 per cent below our and 5 per cent below Street’s expectations," it said.

Nuvama said HUL's volumes were up 2 per cent YoY against Street’s forecast of 2–3 per cent. The miss on sales and weak revenue, it said, was due to price cuts taken to pass on the benefit of commodity deflation.

"Home care (HC) dipped 1 per cent YoY while BPC remained flat. Food & refreshments (F&R) delivered pricing-led growth of 1% YoY. Overall, HUL posted decent volume growth in home and personal care that was marred by a dip in F&R. All in all, we are cutting FY24E/25E EPS by 5 per cent/3 per cent, yielding a revised target of Rs 3,105 (earlier target Rs 3,210); maintain ‘BUY’," it said.

Kaustubh Pawaskar, Deputy VP - Fundamental Research at Sharekhan: "HUL's Q3 performance was below our, as well as, Street expectation with the company registering flat revenues and PAT during the quarter. It was ninth consecutive quarter of mid-to-low single volume growth. Management commentary on demand environment will be keenly monitored by Street," Pawaskar said.

Pawaskar noted that the stock has underperform the broader indices for last one year. "Any recovery in the rural market will provide some boost to the domestic and HUL’s volume growth in the quarters ahead. Further some incentive in the budget to drive consumption will augur well for the company in FY2025. This will be key performing for stock in the near term," he said.

Meanwhile, Deepak Shenoy of Capitalmind in a tweet on X said he finds it strange how markets work sometimes. He cited HUL's 1 per cent increase in earnings, 0.5 per cent increase in sales and a PE multiple of 58 times.

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