Street bullish on HUL as prospects improve, analysts eye key growth drivers

HUL reports flat sales growth in Q1 FY26 due to macro and forex challenges but maintains a positive outlook, with analysts upbeat about the company's growth prospects

Hindustan Unilever’s (HUL’s) consolidated revenue soared 5 per cent in the first quarter of financial year 2026 (Q1FY26), with volume growth of 4 per cent, led by rural recovery which contributed about 1/3 of portfolio along with some improvement in urban demand.

 

Net sales grew 5.2 per cent year-on-year (YoY) to ₹16,320 crore in Q1. Total revenue rose 5 per cent Y-o-Y to ₹ 16,510 crore. The Ebitda was flat Y-o-Y at ₹3,720 crore, and adjusted PAT (profit after tax) fell by 4.5 per cent Y-o-Y to ₹2,530 crore while reported PAT was up 5.6 per cent YoY at ₹2,760 crore. Among business segments, home care revenue grew 2 per cent, beauty & wellness grew 10.7 per cent, personal care grew 6.5 per cent, and foods & refreshment (F&R) declined 4.3 per cent Y-o-Y. 

The gross margin contracted 190 basis point (bp) Y-o-Y to 50.1 per cent. The Ebitda margin contracted 130bp Y-o-Y to 22.5 per cent. Management expects gross margin to improve sequentially. HUL also retains Ebitda margin guidance of 22-23 per cent. There was an exceptional item of ₹127 crore related to restructuring expenses and the reversal of an indemnification asset. The Q1 tax rate was lower. 

Effective tax rate stood at 16.2 per cent in Q1FY26 due to a one-off deferred tax reversal and adjusting for this, the normalised rate is 26.4 per cent.

 

Home care delivered high-single-digit volume growth, while revenue was up only 2 per cent Y-o-Y. There was an adverse pricing impact as HUL maintained competitive prices and passed on lower commodity costs. In beauty & wellbeing (B&W) there was low-single-digit volume growth and revenue growth of 11 per cent. Hair care delivered mid-single-digit growth, driven by “Future Core” and “Market Makers” portfolio. The earnings before interest and tax (Ebit) margin contracted 300bp to 27.5 per cent due to higher investments in digital media and innovation. 

 

Personal care posted 7 per cent revenue growth, supported by calibrated price hikes. Its Ebit margin expanded 90bp Y-o-Y to 18.7 per cent, and Ebit rose 12 per cent. F&R revenue grew 4 per cent, with mid-single digit volume growth. Beverages grew in double digits, with tea delivering high-single-digit growth, while coffee maintained strong double-digit growth. However, Ebit declined 11 per cent YoY.

 

The focus on volume-growth came at the cost of lower short-term margins. Management expects gross margin to improve, aided by better price-cost dynamics, a favourable product mix, and benefits from the net productivity program.

 

The digital-first B&W portfolio now stands at ₹3,000 crore (acquisitions of Minimalist and Oziva contributed ₹ 1,000 crore). The portfolio is growing by over 25 per cent.

 

The macro environment is better with a 100bp repo rate cut since Jan’25, and lower retail inflation, income tax relief, and a good monsoon forecast. Growth in the first half of FY26 is expected to be driven by portfolio transformation and improving macro.

 

The company continues to execute its ASPIRE strategy, focusing on superior brands, stronger innovation, and digital media models, to drive competitive, volume-led growth.

 

About 50 per cent of the portfolio is classified as core, while the remaining comprises “future core” and “market makers”, reflecting the shift to premiumisation.

 

The premium portfolio’s contribution has improved by 500bp since Q2FY24. The company remains focused on volume-led competitive growth and prioritises revenue momentum over margin expansion. The ice cream demerger process is on track to be completed by Q4FY26. Key commodities such as palm oil derivatives, crude, and tea saw sequential softening.

 

The B&W segment saw margin dilution due to increased investments in digital media and product innovation, but margins remain above HUL’s average. The pricing-led growth, which was 4-5 per cent, has now moderated to 1 per cent for HUL and also moderated across the FMCG sector. More than 50 per cent of the company’s media investments are now allocated to digital platforms, surpassing traditional media, in line with evolving consumer behaviour.

 

Prospects seem to be quite good and analyst consensus is bullish. Key monitorables include acceleration in volume growth, premiumisation and new MD & CEO Priya Nair’s strategic directions.

 

According to Bloomberg, 27 of the 35 analysts polled post Q1 results are bullish, while six are neutral and only two are bearish on the stock; with an average one-year target price of ₹2,729.52.

 

HUL’s stock closed 1.17 per cent higher at ₹2,551.35 on Friday even as leading indices shed 0.7 per cent.