HUL shares rise 3% after Q2 results. Jefferies, Nomura cut target price but forecast 29% upside potential

ETMarkets.com

The company’s revenue from operations came in at Rs 18,226 crore, up 15% from Rs 15,919 crore posted in the corresponding quarter of the previous financial year.

The company expects performance to improve in FY27 compared with FY26, driven by portfolio and channel transformation. However, commodity inflation is likely to persist in the near term, with the company guiding for its consolidated EBITDA margin to remain within the current range of 22-24%.

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Jefferies has retained a Buy call but with a reduced target price of Rs 2,350 (29% upside). The brokerage said calibrated price hikes and cost efficiencies will help protect margins. Jefferies expects the impact of inflation to persist in the short term, while HUL's portfolio, largely comprising daily essentials, remains relatively less elastic to price changes. Both urban and rural markets continue to report broad-based growth, with volume-led growth remaining a key priority for the company. HUL has also retained its medium-term margin guidance of 22-24%.

“We expect HUL to see volume-led growth, aided by improved, favourable government policies and a low base. This should percolate into a better margin trajectory in the medium term, as operating leverage benefits start to play out,” the brokerage said in a note.

Nomura has cut its target price for HUL to Rs 2,100 from Rs 2,450, implying an upside of 16%. Volume growth improved sequentially to 7% y-y in Q2, compared with Nomura’s estimate of 5%, despite an 8% y-y price hike. While this appears commendable, it comes against a flat base, translating into a two-year CAGR of 3.5% y-y, which Nomura believes is a more sustainable growth range than the headline volume growth.

The sharp price hike, coupled with a weak monsoon and droughts across several states, could affect the rabi crop and rural demand in the coming quarter, putting further pressure on volume growth. However, HUL highlighted that rural growth improved q-q in Q2 and that the categories it operates in have become more inelastic than in the past and compared with other discretionary categories. Sales growth of 15% y-y exceeded Nomura’s and consensus estimates of 11% and 10%, respectively, although the two-year CAGR stood at 7% y-y.

Domestic brokerage JM Financial also cut the target price by 4% to Rs 2,225 (22.5% upside). “We believe inflationary scenario augurs well for HUL as it accelerates share gains from unorganised/regional players, not to mention adequate levers to navigate the current volatile environment,” analysts said.

The stock has corrected 14% in the past three months and valuation is below the ten-year average. “We like HUL’s execution under the new CEO, but given the broader sector de-rating, we are cutting the target P/E to 40x (from 45x), yielding a revised TP of INR 2,225 (earlier INR 2,315).”

Priya Nair, CEO and Managing Director said the Indian economy remains resilient, with healthy macro indicators supporting a positive consumption environment. “We continue to invest in building long-term capabilities and remain anchored to the ‘Winning in New India’ strategy of delivering competitive, volume-led profit growth.”