Nestle, Hindustan Unilever shares decline up to 2% after BofA downgrades FMCG stocks

"Pricing can remain a key growth driver amidst sharp inflation in commodities like coffee, cocoa, etc. that impact approximately 30% of portfolio," it said in its latest note.

BofA Securities expects some volume recovery for the company on a low base, but notes that the overall growth remains modest. It added that valuations remain elevated in the context of its growth outlook and its peer group.

The brokerage further cut the company's earnings estimates by 3 to 5 percent, factoring the recent trends.

BofA Securities on Hindustan Unilever:

BofA Securities downgraded the shares of Hindustan Unilever to 'Neutral' from 'Buy', and cut its target price to Rs 2,330 apiece from the earlier Rs 2,540 apiece. The latest target price, however, implies an upside potential of over 4 percent from the stock's previous closing price of Rs 2,233.85 apiece.

While the brokerage noted that the trends of the company are expected to pick up from the recent lows, it believes that the growth and margin recovery seem to be much slower than what it had earlier imagined.

"General softness in consumption continues with the urban India slowdown and rural recovering only gradually. Moreover importantly, we see a substantial part of HUL's portfolio (c.35%) impacted by either cyclical/inflationary pressures (tea, soaps) or specific category issues (nutrition, mass skin, etc.) that weigh on overall performance. In our view, mgmt. efforts to invest in new high growth segments and channels is positive, but may not be enough to swing the needle for such a large business near-term," it added.

The international brokerage cut the company's earnings estimates for Q4FY25 by 2 percent and that of FY26/27E by 4-5 percent, citing macro and inflationary volatility.

"We still like the long-term India Consumer story, though highlight that the aggregate growth of large companies is currently close to two-decade lows. It's a peculiar time where HUL is growing slower than Unilever. The recovery in coming quarters may be key in determining where the stock's rich valuations settle," it added.

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Nestle India shares have so far fallen over 18 percent in the last six months, while those of HUL have dropped over 23 percent during the period.

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