HUL’s revenue growth has a party pooper, and it may be here to stay

Hindustan Unilever Ltd’s (HUL) multi-quarter-high revenue growth for the three-months ended September (Q2FY27) failed to bring much excitement to investors, probably due in large part to margins dropping to multi-quarter lows.

Elevated commodity prices triggered by the West Asia war dragged HUL’s consolidated gross margin down a huge 397 basis points (bps) year-on-year and 195 bps sequentially to 47.6%. The fast-moving consumer goods (FMCG) giant’s total raw-material costs increased by 24% year-on-year, far above the operating revenue growth of 14.8%, which was highest in 14 quarters.

To protect profitability, HUL undertook calibrated pricing actions which, along with operating leverage and a 9% fall in advertising and promotion expenses, helped curb the Ebitda margin drop to 134 bps year-on-year to 22.4%. Ebitda grew by 8% to ₹4,090 crore. The company sees commodity inflation continuing in the short term and has guided for consolidated Ebitda margin of 22-24% in the medium term. HUL expects FY27 demand outlook to be better than FY26, driven by portfolio and channel transformation.

In Q2FY27, pricing growth was around 8% and underlying volume growth was 7%, on a favourable base of flattish volumes in Q2FY26. On a two-year compound annual growth rate (CAGR) basis, Q2FY27 volume growth is about 3.5%—a level Nomura analyst Mihir P. Shah considers a more realistic and sustainable range (4-5%) than the optically inflated quarterly figure. “This sharp price hike along with a weak monsoon/droughts in many states can have a likely impact on rabi crop/rural demand in the coming quarter, which could pressure volume growth further,” read the broking firm’s 29 October report.

Segment-wise performance

Within segments, home care revenue, contributing almost 38% of HUL’s total revenue, rose 21% year-on-year, the fastest growth among all segments. Volume growth was in the double digits, but earnings before interest and taxes (Ebit) margin fell 297 bps to 16.2%. Fabric wash and household care saw double-digit, broad-based growth across brands. Premiumization in powders through Surf Excel Easy Wash’s ₹99 pack continued to scale well, the company said.

Beauty and wellbeing, which account for almost 24% of HUL’s revenue, grew 16% year-on-year, while Ebit margin expanded 16 bps to 28.6%. Hair care accelerated its double-digit, volume-led growth trajectory, while skin care and colour cosmetics also delivered double-digit, volume-led growth.

Personal care, contributing 14% of Q2FY27 revenue, was a sore spot with 8% growth, flat volumes and a 313 bps dip in Ebit margin to 17.2%. Here, skin cleansing delivered double-digit growth, driven by pricing actions, while oral care saw low-single-digit growth. HUL’s remaining revenue came from the foods business, which saw revenue rise 8.5%. Coffee saw high-single-digit growth, driven by volumes, while mass tea performance was subdued.

“HUL’s performance is becoming increasingly polarised, with portfolio growth getting skewed as premium beauty, laundry/dishwash liquids, high-science nutrition and soaps/bodywash do the heavy lifting,” said analysts from Systematix Shares and Stocks (India). “Realisations can get accentuated over FY27E-FY29E as HUL rejigs its portfolio to expand into the above higher-margin categories. However, input-cost inflation can remain stubborn near-term, requiring further pricing, and the combined impact on demand/margins needs to be watched,” added the report, dated 28 October.

HUL stock is up about 5% from its 52-week low of ₹1,758.20 seen on Tuesday. It trades at 38 times estimated FY27 earnings, based on Bloomberg data.