HUL needs growth mojo. But demand conditions may play spoilsport
Subscribe to enjoy similar stories. Hindustan Unilever Ltd (HUL) has been struggling with muted revenue growth for the past few quarters, thanks to a combination of weak pricing and subdued volume growth. Demand conditions are still not particularly exciting, with urban demand moderating even as rural is recovering.
At its recent capital markets day meeting, HUL’s management indicated that it foresees overall demand trends to be stable in the short term. The company expects low single-digit price growth in the near term if commodity prices remain where they are. Here, commodity price volatility, especially in tea and palm oil, is a challenge.
HUL intends to focus on volume-led revenue growth and expects to maintain Ebitda margin at current levels in the near future. Its Ebitda margin for the six months ending September (H1FY25) stood at 23.5%. Ebitda is short for earnings before interest, taxes, depreciation, and amortization.
HUL has made sharper portfolio choices through Pureit divestment and ice cream business demerger as these have lower synergies with the company. “We believe some of the headwinds HUL faced in FY24 and H1FY25 were temporary. We believe the narrative will turn positive in H2FY25 as price deflation will be behind," said a BNP Paribas Securities report.
HUL is also touted as a key beneficiary of a recovery in rural growth. At the meeting, the management shared its key long-term aspiration of clocking double-digit earnings per share (EPS) growth, primarily via revenue growth and modest margin expansion. Growth would be driven by volume growth of 100 basis points more than the industry average, premiumization and portfolio transformation in the beauty and well-being (B&W) and foods businesses.
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