Why HUL is not an analyst darling at the moment

HUL is seeing an emergence of small and regional players, mostly in the detergent and tea categories.

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26 Aug, 2025 12:21

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Hindustan Unilever (HUL) has lost favour with several brokerage firms, suffering the most downgrades among Fast Moving Consumer Goods (FMCG) companies in the last quarter, behind only Britannia Industries. A slower-than-expected rural recovery and rising competition in mass portfolios are among the factors bothering analysts.

Bloomberg data reveals that HUL's buy recommendations decreased from 29 to 26 in the last quarter, while hold calls rose from 13 to 16 during the same period. However, sell recommendations have slightly declined from 3 in the previous quarter to 2 currently.

HUL's volume growth in the July-to-September quarter was at 2 percent. Volumes in rural areas declined 1 percent on a two-year CAGR basis. While rural recovery continued to be weak for many FMCG companies, the consumer leader is in a far worse position. “HUL has to depend on overall demand to return in order to strengthen its rural base,” said Preeyam Toila, equity research analyst at Axis Securities. He added that unlike its peer Nestle India, HUL has already penetrated rural India, leaving limited scope for further expansion to drive growth.

“HUL is likely to see a muted near-term show, given the rural slowdown hurting its volume growth and pricing turning flat-to-negative,” brokerage Emkay Global said in its result update.

The FMCG major missed analyst estimates in the July-to-September quarter. Its net profit increased 3.86 percent YoY to Rs 2,717 crore, while revenue grew marginally by 3.53 percent YoY to Rs 15,027 crore.

Competitive intensity also remains a problem for HUL amid easing raw material costs. HUL is seeing an emergence of small and regional players, mostly in the detergent and tea categories. Small detergent bars players are growing at 6x the rate of larger players. While small players are growing at 1.4x as compared to organised players, said the company in its investor presentation.

“We have argued in the past that in a rising inflationary scenario HUL could grab market from local/ regional players across its portfolio, but with easing of commodity inflation there is a risk of such competition to hit back,” Centrum Institutional Research wrote in its result update.

While HUL’s detergent business is witnessing competition from small players, its skin care business is facing competition from new-age companies such as Mamaearth, said Nitin Gupta, senior research analyst at Emkay Global Financial Services.

Moreover, the company remains watchful on crude prices, geopolitical instability, and the effect of the monsoon on crop output for the next quarter. Crude derivatives account for almost 40 percent to the overall raw material costs of FMCG companies, an increase that will impact margins for HUL.

Many brokerage firms have also cut estimates for the Surf Excel detergent maker. ICICI Securities has reduced its earnings estimates by 2 percent for FY24-25, while Centrum Institutional Research has cut its earnings estimate by 1.7 percent for FY24-25.

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