HUL share price drops over 2% after muted Q3 results; should you buy, sell or hold the stock?

Hindustan Unilever (HUL) share price declined over 2% in early trade on January 20 after the FMCG major reported weak Q3 results. HUL shares dropped as much as 2.81% to ₹2,492.65 apiece on the BSE.

HUL posted a standalone net profit of ₹2,519 crore for the third quarter of FY24, a growth of just 0.55% from ₹2,505 crore in the same quarter of last fiscal year. However, HUL’s Q3 net profit declined 7.28% from ₹2,717 crore on a sequential basis.

The company’s total revenue in Q3FY24 fell 0.38% to ₹14,928 crore from ₹14,986 crore, YoY. Revenue dropped 0.6% from ₹15,027 crore in the September 2023 quarter. The company saw an underlying volume growth (UVG) of 2%.

At the operational level, EBITDA was flat at ₹3,540 crore, while EBITDA margins improved by 10 basis points YoY to 23.7%. HUL’s Home Care segment saw a marginal decline in revenue with mid-single digit UVG in the quarter. However, on a 2-year CAGR basis, the business delivered a strong double-digit growth of 14% with high single digit UVG.

Beauty & Personal Care business saw mid-single digit volume growth led by Hair and Premium Skin, while Foods & Refreshment segment revenue grew 1%. The price led growth was driven by the market development portfolio.

“We believe demand slowdown, competitive pressure, distribution stress, and rising royalty rates are likely to have an overhang on HUL’s valuations (46x P/E for FY26). Management commentary on demand setting remains unexciting, as demand recovery remains a hope on the emergence of tailwinds,” Emkay Global Financial Services said.

It believes reinforcing the general trade moat is now an added pressure, with changes in distributor margin structure. Q3 results stood 3% below the brokerage’s estimates and 5% below the street’s expectations.

“Capturing demand pressure, we have revised our topline expectations down by 3%, which led to a 3% cut in earnings. We are now 6-7% below consensus expectations for FY25 and FY26. The stock’s valuations at 46x for FY26, though factoring in near-term pressure, may see a derating if volume recovery remains elusive in FY25,” said the brokerage firm.

It maintained an ‘Add’ rating on the stock and cut the target price to ₹2,700 from ₹2,800 earlier.

At 9:30 am, HUL shares were trading 2.01% lower at ₹2,513.15 apiece on the BSE.