Shares of FMCG major Hindustan Unilever (HUL) tumbled nearly 4% in early morning trade on January 23, hitting an 8-month low of ₹2,254 apiece. The decline came after the company indicated that the moderation in the consumption goods market is expected to continue in the near term, weighed down by a slowdown in urban consumers after it reported a 2% year-on-year increase in sales for the quarter ended December.
Following the company’s tepid performance, brokerage firms trimmed their target price on the stock, citing challenges in the near term amid a slowdown in urban demand.
Nuvama has cut its target price for HUL to ₹3,225 per share from ₹3,395 earlier while maintaining its ‘Buy’ rating. The brokerage noted that volume growth was below expectations, and overall performance was in line with estimates. Given the current raw material inflation, it has reduced its FY25E, FY26E, and FY27E EPS estimates by 3%, 5%, and 5%, respectively.
Similarly, Investec maintained its ‘Hold’ rating on the stock, trimming its target price to ₹2,643 from ₹2,654. It highlighted that no near-term recovery is on the cards, with near-term growth outcomes remaining challenging for HUL.
Investec noted HUL’s intent to pursue the inorganic route with the Minimalist acquisition, which is expected to contribute less than 1% to FY26E sales. The brokerage believes that visible triggers for improving revenue growth will drive earnings, valuations, and stock price movement from current levels.
Global brokerage firm CLSA has also cut its target price for HUL to ₹1,924 per share while maintaining its ‘Underperform’ rating. CLSA cited weak growth and lower margins in Q3, with three out of four segments witnessing a decline in UVG (Underlying Volume Growth).
It trimmed the EPS estimates by 4-6% for FY25-27, noting that margins are expected to weaken, especially in the Beauty & Wellness segment, as growth becomes a focus.
Goldman Sachs maintained its ‘Neutral’ call with a target price of ₹2,480 per share, stating that Q3 results fell below estimates due to weak volume and EBITDA growth. It highlighted an urban slowdown, with downtrading to smaller packs underway. Soap volumes declined due to high price increases and grammage cuts. Despite low ad spends, the EBITDA margin was lower year-on-year.
Regarding the Minimalist acquisition, the brokerage assessed the deal at 6x EV/sales and found the valuation fair, given its profitability, synergy, and complementary fit. It also observed a positive pricing trend after many quarters, with pricing turning positive by 2%.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
