Pace of growth recovery key for HUL as it executes its new strategy

HUL is betting on premiumisation, consumption and new categories to drive volume-led growth, but analysts await clarity on the pace and timeline of recovery

Hindustan Unilever’s (HUL’s) recipe for volume-led growth for 2026-27 (FY27) and beyond is premised on premiumisation, consumption, market development, and entry into new categories. A shift to a portfolio of higher gross-margin products and operating leverage is expected to help the fast-moving consumer goods (FMCG) company generate better profitability. This has resulted in the company raising the upper end of its management guidance to 24 per cent.

 

While brokerages are positive on the strategy outlined at the analyst meet last week and valuations are favourable, the stock was largely flat in trade on Monday. What has weighed on sentiment is the lack of details on timelines and the extent of growth. Gains for the stock would hinge on the ability of the fast-moving consumer goods market leader to deliver on revenues and margins. At the current price of ₹1,966, the stock is trading at just under 39-45x its 2027-28 earnings estimates.

 

The management highlighted that its strategy for volume growth entails a focus on winning in ‘New India’ (rising incomes, digital penetration, and changing consumer preferences), as against the previous strategy of winning in ‘Many Indias’ (geographic/regional categorisation). About 80 per cent of the growth is expected to come from consumption, premiumisation, and expansion of the base, while the rest is expected to come from entry into high-growth markets. 

 

Analysts at Jefferies Research, led by Vivek Maheshwari, point out that HUL’s playbook for ‘New India’ is shifting from broader reach to sharper, segment-led growth. The volume growth focus would be supported by artificial intelligence-led execution and a large, self-funded reinvestment cycle. Though the brokerage has maintained a ‘buy’ rating, it has cut its earnings estimates by 1-2 per cent to factor in the risk of lower near-term margins due to the high input price trend. It has lowered its valuation multiple to 45x September 2028 earnings estimates amid a broader FMCG sector derating. Its revised target price is ₹2,450.

 

The management remains confident about delivering better growth in FY27 versus the past three years. Excluding ice creams, turnover has been broadly flat between 2023-24 and 2025-26. The renewed strategy, according to analysts led by Naveen Trivedi of Motilal Oswal Research, is expected to address the growth challenges that have persisted over the past few years. Moreover, continued recent sequential improvement in sales growth, alongside share gains, offers early validation, they add. The brokerage has reiterated its ‘buy’ rating on the stock with a target price of ₹2,400, based on 40x its September 2028 estimated earnings.

 

Despite multiple headwinds, including the rise in crude oil prices, the company believes it is well positioned to navigate the environment through commodity hedges, accelerated cost-saving initiatives, portfolio transformation strategies, and stronger omnichannel capabilities. Growth in the gross margin-accretive portfolio is expected to be 1.5x faster than that of the rest of the portfolio.

 

HUL has expanded its operating profit margin guidance to 22-24 per cent from 21.5-23.5 per cent. The margin guidance comes at a time when it has increased capital expenditure intensity from 2 per cent of turnover historically to 3 per cent going ahead, with over 85 per cent directed towards growth and savings initiatives.

 

JM Financial points out that as HUL pivots towards a high gross margin portfolio, which will grow 1.5x the balance portfolio, it sees scope to deliver higher margins and has hence raised the higher end of margin guidance to 24 per cent from 23.5 per cent. However, the portfolio reset will also entail higher investments at times, leading it to cut the lower end of the guidance to 22 per cent from 22.5 per cent.

 

While the brokerage is positive about the new growth strategies, the only missing piece — also the key investor debate — according to analysts at the brokerage led by Mehul Shah, is quantification of the possible growth acceleration and the timeline for the same. While it retained a ‘buy’ rating on the stock, it has lowered its target multiple to 43x from 45x and revised its target price to ₹2,315.