HUL gains market share in 3/4th of its products; should you buy, sell or hold stock?

In its recent report, BOB Capital Markets Ltd highlighted a steady growth momentum for Hindustan Unilever (HUL) with significant market share gains in over 75 per cent of its product portfolio. HUL reported a robust 16 per cent YoY revenue growth in FY23, amounting to Rs 581.5bn, underpinned by volume growth of 5 per cent. This comes despite persistent macroeconomic hurdles including tepid market growth, commodity inflation, and geopolitical uncertainties.

Key to HUL's success appears to be its focus on market development and innovation, particularly within the segments of face wash, hair post-wash, body lotion, body wash, mask, and serum. The company, known for its strong portfolio of brands including Lakmé, Dove, Pond’s and TRESemmé, has been tapping into emerging demand through innovative new launches.

In addition to its strategic product development, HUL has maintained a formidable distribution network, reaching around 9 million retail outlets in the country, with a direct reach to over 2 million of these through its traditional distributor network. Moreover, HUL's 'Shikhar' app has seen widespread adoption, with usage by 1.2 million retail outlets, facilitating direct orders to distributors.

This growth trajectory, according to BOB Capital Markets, is likely to continue, leading the firm to maintain a 'Buy' rating on HUL's stocks. Currently, the stock is trading at 53.5x/46.4x FY24E/FY25E EPS. BOB Capital Markets values the stock at 52.5x FY25E EPS with an unchanged TP of Rs 3,069.

While the near-term operating environment is expected to remain volatile due to global slowdown risks and weather-related uncertainty, HUL's outlook remains strong. Centrum, another financial services firm, echoes the positive outlook for HUL with a 'Add' rating, albeit with a slightly lower target price of Rs 2,703. Centrum notes that HUL's Q4FY23 performance was in line with estimates and even exceeded in some areas, demonstrating resilience despite the challenging operating environment.