Hindustan Unilever (HUL), one of the largest FMCG companies in India, faced a tough market reaction after its Q2 FY25 results. The company’s shares dropped over 5% following the announcement of its earnings, leaving investors wondering whether this presents a buying opportunity or a sign to hold back.
HUL Q2 FY25 Performance Overview
HUL’s revenue from operations in Q2 FY25 rose marginally by 2% year-over-year (YoY), reaching ₹15,319 crore compared to ₹15,027 crore in Q2 FY24. Despite this increase, the company saw a decline in standalone net profit, which fell 4% YoY to ₹2,612 crore, down from ₹2,717 crore in the same period the previous year.
The company also reported a volume growth of 3%, which did not meet the market’s expectations. The EBITDA for the quarter dropped by 1.3% to ₹3,647 crore from ₹3,694 crore, leading to a contraction in EBITDA margins, which narrowed by 80 basis points (bps) to 23.8%.
HUL’s board also announced plans to separate its ice cream business by December 2024, based on recommendations from an Independent Committee. This move is expected to unlock value in the company’s high-growth, yet low-margin segment.
Table: Key Financial Highlights of HUL’s Q2 FY25
| Financial Metric | Q2 FY25 | Q2 FY24 | YoY Change |
|---|---|---|---|
| Revenue from Operations | ₹15,319 cr | ₹15,027 cr | +2% |
| Standalone Net Profit | ₹2,612 cr | ₹2,717 cr | -4% |
| Volume Growth | 3% | — | +3% |
| EBITDA | ₹3,647 cr | ₹3,694 cr | -1.3% |
| EBITDA Margin | 23.8% | 24.6% | -80 bps |
What Analysts Say About HUL’s Performance
Motilal Oswal: Buy with Caution
Motilal Oswal remains cautiously optimistic about HUL’s future growth, especially in rural markets, which continue to perform better than urban regions. While the brokerage cut its EPS estimates by 2% for FY25 and FY26 due to raw material cost pressures, it still maintains a “Buy” rating with a target price of ₹3,200.
Nuvama Institutional Equities: Buy with Raised Targets
Nuvama Institutional Equities highlighted that HUL’s long-term prospects remain strong, especially with the expected recovery in rural markets and price increases in tea for Q3 FY25. The brokerage raised its target price to ₹3,395 from ₹3,375 and recommends a “Buy.”
Antique Stock Broking: Hold with Gradual Improvement
Antique Stock Broking expects a gradual improvement in HUL’s performance, citing monsoon-led rural recovery. However, they maintain a “Hold” recommendation with a target price of ₹2,666.
Key Takeaways for Investors
- Buy for Long-Term Growth: HUL’s diverse product portfolio and leadership in segments like Home Care make it a strong contender for long-term investors.
- Rural Recovery is Key: HUL’s reliance on rural markets could provide upside as government stimulus and favorable monsoon boost spending in these areas.
- Short-Term Weakness: Despite the overall positive outlook, HUL faces short-term pressure from raw material costs and urban consumption slowdown.
Should You Buy or Hold?
HUL’s Q2 FY25 results may have disappointed the market, but the company’s fundamentals remain solid. With analysts projecting a gradual recovery and the company’s strategic leadership under Rohit Jawa, HUL remains a stock to watch for long-term growth, particularly as rural markets recover.
However, in the short term, there could be some volatility as the company navigates raw material cost pressures and continues to adjust to consumer demand changes. For risk-averse investors, it might be wise to hold onto existing shares rather than buy at current levels.
Disclaimer
The above analysis is based on market trends and financial data available at the time of writing. Investors are advised to conduct their own research or consult with a financial advisor before making any investment decisions.
