HUL shares: Earnings recovery to take time; should you buy, hold or sell stock?

Hindustan Unilever Ltd (HUL) largely reported in line Q2 results, but its volume growth at 3 per cent came in lower than analyst expectations of 5 per cent. The FMCG firm said there is no indication of acceleration in demand momentum in the near term and that margins are likely to remain at similar levels over the next two quarters. Analysts have marginally cut their EPS estimates and a few even trimmed their price targets on the HUL stock post Q2 results, factoring in the muted commentary.

Nirmal Bang said it has cut its EPS forecasts for FY25 and FY26 by 1.5-3.5 per cent, largely as a result of muted topline growth outlook.

The brokerage noted that HUL's historical outperformance in terms of stock price returns was more pronounced towards the second half of the last decade when despite a muted sales CAGR of 6 per cent during FY14-FY20, Ebitda was still up 13 per cent CAGR because Ebitda margin expanded sharply from 16 per cent in FY14 to 24.8 per cent in FY20.

"Even as there could be some recovery in topline in 2HFY25 and FY26, the management has guided for similar Ebitda margin as in 2QFY25 in the near term and modest improvement thereafter. Even after assuming more than a modest margin expansion in FY26, we still get only 9 per cent Ebitda CAGR over FY24- FY27E. Maintain HOLD rating as valuation is not cheap at 53 times FY26E EPS," it said.

The brokerage suggested a 'Hold' and a target price of Rs 2,805 against Rs 2,875 earlier.

Emkay Global retained 'Buy' on HUL, as it continues to see enhanced business execution. The relatively weaker show in Q2 is a factor of the tough external setting -- inflationary raw material environment and weakness in urban demand.

"The portfolio (Home Care and Beauty & Wellbeing) that represents 3/5th of the sales and 2/3rd of the EBIT is in good health, with topline growth in a high single-digit and margin expansion. The inflationary setting has a bearing on performance of the remaining portfolio. The management cautioned about the near-term demand setting, but is optimistic about the long-term opportunity. Factoring in the near-term stress, we reduce FY25-27E earnings 4-5 per cent," the brokerage said.

Emkay suggested a revised target price of Rs 3,225 for HUL against Rs 3,400 earlier.

"We cut our EPS estimates by 2 per cent for FY25 and FY26 each as we moderate our growth assumptions amid RM cost pressure. HUVR’s wide product basket and presence across price segments should help the company achieve a steady growth recovery," MOFSL said.

Under the new leadership of Rohit Jawa, HUL is expected to take corrective actions to address the white space, particularly in BPC and F&R. The company commands strong leadership in Home Care, which can be capitalized during improving macros, MOFSL said.

"We reiterate our Buy rating with a target price of Rs 3,200, based on 60x Sep’26E EPS, close to last five-year average P/E," it said.