Brokerages split on Hindustan Unilever as urban slowdown clouds outlook

Hindustan Unilever Ltd (HUL), currently priced at Rs 2,659, is facing mixed sentiments from brokerages after its Q2 performance, which highlighted growing demand pressures, especially in urban areas. Here's a curated look at the latest views from top global financial firms:

Brokerages have offered mixed ratings for Hindustan Unilever Ltd (HUL), currently priced at Rs 2,659. JP Morgan has maintained an "Overweight" rating but cut its target to Rs 2,870 from Rs 2,950, citing slowing urban demand.

Q2 Performance and Outlook

JP Morgan has maintained its "Overweight" rating on HUL but revised its target price down to Rs 2,870 from Rs 2,950. The brokerage cited slowing urban demand as a key concern for the near-term outlook. Though pricing and market share have improved, the company's revenue and EBITDA for the quarter were both around one percent below expectations. JP Morgan expects HUL's earnings per share (EPS) for FY25-26 to be lower by three percent due to these pressures.

Goldman Sachs, on the other hand, has maintained a "Neutral" stance while slightly increasing its target price to Rs 2,775 from Rs 2,675. This modest revision suggests that the firm sees limited upside potential but acknowledges the company's stable fundamentals.

Jefferies remains bullish on HUL, retaining its "Buy" rating with a target price of Rs 3,130. The brokerage noted that HUL's volume growth (UVG) of three percent year-on-year was in line with its estimates but acknowledged the challenges posed by demand pressures, particularly in urban markets. Jefferies pointed out that the home care segment showed strong revenue and EBITDA growth, while the beauty and well-being categories posted modest gains. However, personal care and foods segments saw a decline.

Morgan Stanley holds a more cautious outlook, maintaining an "Underweight" rating with a target price of Rs 2,110. The brokerage expressed concerns over the weak headline volume growth, particularly in the personal care and foods and refreshments (F&R) segments. Morgan Stanley also indicated that inflation in tea and palm oil could lead to low single-digit price growth in the upcoming quarters.

CLSA has retained its "Underperform" rating on HUL, with a target of Rs 2,164, while Macquarie has taken the most optimistic stance, maintaining an "Outperform" rating and setting the highest target at Rs 3,250. Macquarie believes that despite the urban slowdown, HUL's strong market position and strategic initiatives could drive long-term growth.

Key Trends

A common theme across the brokerage reports is the slowdown in urban demand, which is overshadowing a modest recovery in rural markets. This urban-rural divide is a key factor in the divergent views on HUL's growth potential.
   
Home care emerged as a bright spot in HUL's Q2 results, with robust growth, while beauty, personal care, and foods underperformed. This segmental variance reflects broader consumer trends and the impact of inflation on discretionary spending.

With volume growth lagging behind expectations and inflationary pressures in key raw materials like tea and palm oil, HUL may struggle to drive significant price growth in the near term.

HUL remains a widely covered stock with diverging views from top global brokerages. While firms like Macquarie and Jefferies see room for growth and remain optimistic, others like Morgan Stanley and CLSA are more concerned about the company's short-term prospects due to an urban slowdown and segmental weaknesses. Investors may need to keep a close watch on how these dynamics evolve in the coming quarters.