HUL shares drop over 5% after weak Q2 results: Buy, sell, or hold?

HUL's standalone net profit for Q2 FY25 dropped by 4% to Rs 2,612 crore, down from Rs 2,717 crore reported in the same quarter last year.

In Short

• HUL shares fall 5% post weak Q2 results
• Net profit drops 4% to Rs 2,612 crore
• Analysts retain 'buy' with cautious outlook

Shares of Hindustan Unilever (HUL), a key player in the fast-moving consumer goods (FMCG) sector, declined by nearly 5% after the company released its second-quarter (Q2) financial results. The stock hit a day’s low of Rs 2,507 on the Bombay Stock Exchange (BSE) following a weak performance in the September 2024 quarter.

As of the latest update, HUL shares were down 5.52%, trading at Rs 2,512.45.

HUL's standalone net profit for Q2 FY25 dropped by 4% to Rs 2,612 crore, down from Rs 2,717 crore reported in the same quarter last year. This decrease in profit was a key factor behind the fall in HUL’s share price. The company’s revenue from operations saw a slight increase of 2%, reaching Rs 15,319 crore, compared to Rs 15,027 crore in the corresponding period last financial year.

The subdued quarterly performance comes at a time when the FMCG sector has been facing challenges, including high raw material costs and a slow recovery in rural demand. Analysts suggest that these factors have affected HUL’s ability to expand its margins.

Despite the lower profit, HUL announced a total interim dividend of Rs 29 per equity share. The record date for this dividend is set for November 6, 2024. This move is likely aimed at offering some relief to shareholders amidst the fall in share price.

WHAT SHOULD INVESTORS DO?

Here is what analysts have to say about HUL's Q2 results and what it means for investors.

Nuvama has retained a 'buy' rating on HUL, raising the target price to Rs 3,395 from Rs 3,375. Nuvama noted that HUL’s Q2 performance was largely in line with expectations, despite a slight decline in profitability. The firm expects a gradual recovery in rural markets, which could boost HUL’s growth in the second half of FY25 and beyond.

Nuvama has, however, slightly lowered its earnings estimates for FY25 and FY26 due to concerns about slower urban demand.

Motilal Oswal is optimistic about HUL’s potential to recover in the coming quarters. The brokerage emphasised that HUL’s broad product range and presence across different price categories would help it navigate the current challenges.

Motilal Oswal has trimmed its earnings per share (EPS) estimates by 2% for FY25 and FY26, mainly due to rising raw material costs. The firm believes HUL’s leadership in the Home Care category will be beneficial as economic conditions improve.

HDFC Securities considers HUL a strong performer in the FMCG space, maintaining a "buy" rating with a target price of Rs 3,200. The brokerage is confident that the worst period of muted volume growth, pricing adjustments, and rural slowdown is over.

HDFC Securities expects HUL to see a compound annual growth rate (CAGR) of 6% in revenue, 8% in earnings before interest, taxes, depreciation, and amortisation (EBITDA), and 8% in net profit from FY24 to FY27. The firm also believes HUL stands to benefit from increased government spending on rural development, as nearly half of HUL’s sales come from rural areas.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)