Hindustan Unilever Faces Challenges Amidst Dwindling Performance

Hindustan Unilever Faces Challenges Amidst Dwindling Performance Image/Mint

Hindustan Unilever Faces Challenges Amidst Dwindling Performance

Hindustan Unilever’s share price witnessed a 7% decline over the past year, experiencing an additional 1% decrease in Monday’s intraday trading.

The company remains among the few underperformers compared to the significant gains observed by benchmark indices, with the Nifty-50 index and S&P BSE Sensex rising more than 13% and 12.55%, respectively, during this period.

The consumer discretionary space, especially volume growth, poses a significant concern for companies like Hindustan Unilever.

Rising advertising and promotional expenses have impacted earnings due to intense competition in the Fast-Moving Consumer Goods (FMCG) sector.

Weak rural demand further compounds the challenge, attributed partly to inadequate and uneven rainfall during the unsatisfactory monsoon season. Additionally, soaring food prices and stagnant rural wages have thwarted any recovery in rural demand.

In the July-September quarter, Hindustan Unilever reported a revenue growth of 4% YoY, significantly lower than the 16% seen in Q2FY23 and 7% in Q1FY24. Domestic volume growth at 2% also fell below analyst estimates of 3%.

Post a weak Q2, October didn’t indicate any significant improvement in performance. According to Jefferies India Pvt Limited, industry volumes grew at a mid-single-digit rate, with a sluggish two-year Compound Annual Growth Rate (CAGR) at 2%.

The sentiment in rural and bottom-of-pyramid segments remained subdued due to the weak monsoon, impacting festive season sales.

Furthermore, analysts at Jefferies highlighted a negative turn in pricing growth, referring to Nielsen data, indicating trade pipeline adjustments and product price reductions impacting retail sales.

They anticipate a slight negative pricing growth for Hindustan Unilever in the third quarter.

Predictions suggest high advertising expenditures, which may maintain EBITDA margins at the levels observed in recent quarters.

Given these challenges, Jefferies remains cautious, maintaining a target price of ₹2720 for the stock, reflecting the weakened near-term earnings outlook for Hindustan Unilever.

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