The FMCG giant Hindustan Unilever’s Q3 FY25 revenue and EBITDA were in line with Bloomberg consensus estimates. While headline PAT number was a beat versus consensus, it was driven by exceptional items. Adjusted for this, the PAT at ₹2,540 crore missed consensus expectations by 4.5 per cent. On a year-on-year basis, revenue and EBITDA grew 1 per cent while adjusted PAT stayed flat.

Demand concerns and weak metrics persist

While the previous quarter (Q2) saw hints of moderation in urban markets and gradual recovery in rural markets, Q3 results saw such weak trends persist. Also, HUL, which can be considered a barometer for FMCG demand, is witnessing smaller packs moving off the shelf faster than larger packs, though the premiumisation trend is said to be still in play.

The slack observed in Q3 should not come as a rude surprise, as the management commentary post Q2 results was muted and predicted stable demand with no further acceleration in pace of growth.

Home care segment, again in Q3 FY25 (as in Q2 FY25) proved to be the saviour for HUL growing 5.4 per cent year-on-year, pulling the overall revenue growth to 1.6 per cent, while other segments were flattish.

Home care continues to be the largest segment bringing in around 37 per cent of the revenue, while beauty, wellbeing and personal care segments together bring in 36 per cent. Food and refreshments contribute 24 per cent and other segments plug in the remaining.

Premium products across segments, especially body wash, serums and related skin-care products along with coffee, saw double-digit growth against last year. The price hike measures helped in revenue growth but the gross margin and EBITDA margin were down 70 bps and 20 bps y-o-y owing to flattish volumes, inferior product mix and raw material inflation.

Palm oil, a key feedstock, continued to impact profitability, with its prices up 40 per cent y-o-y. Tea prices, also, remained elevated at 24 per cent over previous year. While crude oil prices were down yet volatile, input cost inflation will be a key monitorable, going forward.

Demand, which was expected to remain stable post Q2 FY25, is likely to moderate now, in the near term. EBITDA guidance was slightly lowered from mid to the bottom end of the 23-24 per cent range. However, the price hike measure, still in motion, is expected to partially offset the demand moderation.

HUL also announced the acquisition of Minimalist, a D2C personal care brand. Nevertheless, it is miniscule (with FY24 revenue at 0.6 per cent of HUL’s) and might not materially impact the financials.

Having corrected around 22.6 per cent from its 52-week high in August 2024, HUL is currently trading at 51 times its trailing 12-month earnings. Pick-up in volume growth is much warranted to retain such elevated valuations, and hence the current flattish volume trend is not encouraging.

The stock has given 13 per cent returns in the last five years against Sensex’s 85 per cent returns.

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