Hindustan Unilever Stock Declines Nearly 4% Following Q3 Earnings Report
Shares of Hindustan Unilever Ltd (HUL) witnessed a significant drop of nearly 4% in early trading on Thursday, January 23, 2025, as the company’s December quarter earnings report failed to meet investor expectations. The dip in profit margins and lack of strong growth drivers left market participants unimpressed, leading to a sharp sell-off in the stock.
HUL’s stock declined 3.8% to ₹2,253.85 per share on the National Stock Exchange (NSE) and 3.75% to ₹2,255 per share on the Bombay Stock Exchange (BSE) during morning trading. This performance contrasted sharply with the broader market, which traded in the green, as the BSE Sensex rose 164.36 points (0.22%) to 76,569.35, and the Nifty50 increased 63.45 points (0.27%) to 23,218.80.
Q3 Earnings Snapshot
Hindustan Unilever reported a 2.76% decline in standalone net profit at ₹2,540 crore for the third quarter of the current fiscal year, a drop from ₹2,608 crore in the corresponding period of the previous fiscal. On a consolidated basis, however, net profit surged 19.18% to ₹2,989 crore, boosted by one-time gains from the divestment of its water purifier business, Pureit.
Despite the growth in consolidated profit, the company’s operational performance disappointed investors. Revenue from operations stood at ₹16,050 crore, reflecting only a modest increase from ₹15,781 crore in the same quarter last year. This marginal rise in revenue failed to offset higher operating expenses, which increased to ₹12,576 crore from ₹12,305 crore during the same period last year.
Key Drivers of Earnings Performance
1. Weak Operating Performance
The drop in standalone profit was largely attributed to subdued demand in rural areas and muted volume growth in core FMCG categories. The rising costs of raw materials also exerted pressure on margins, limiting the company’s profitability.
2. One-Time Gains from Pureit Divestment
Hindustan Unilever’s consolidated net profit was bolstered by the sale of its Pureit business, which contributed significantly to the ₹2,989 crore profit. However, this one-time gain failed to mask the operational weakness observed in the company’s core business segments.
3. Acquisition of Minimalist
Hindustan Unilever announced its decision to acquire 90.5% of Uprising Science Pvt Ltd, the company behind the popular premium skincare brand Minimalist, for ₹2,670 crore. The acquisition, which values Uprising Science at a pre-money enterprise valuation of ₹2,955 crore, is expected to help HUL strengthen its position in the premium beauty and personal care segment.
4. Demerger of Kwality Wall’s
The company’s Board of Directors approved the demerger of its ice cream business into a newly formed entity, Kwality Wall’s (India) Ltd (KWIL). As per the terms of the demerger, one equity share of KWIL will be allotted for every equity share held in HUL. Upon listing, KWIL will operate as a standalone entity, with HUL shareholders holding direct ownership.
Market Reaction
The mixed Q3 results, combined with the lack of strong volume growth, failed to impress investors, resulting in a sharp sell-off in Hindustan Unilever shares. Despite positive developments like the Minimalist acquisition and Kwality Wall’s demerger, concerns over slowing growth in rural markets and rising costs dampened sentiment.
At 12:29 PM, HUL’s shares were trading 0.77% lower at ₹2,324.80 apiece on the NSE, recovering slightly from their intraday lows. However, the overall sentiment around the stock remained bearish, with analysts citing the need for a stronger growth trajectory in core categories to regain investor confidence.
Key Developments and Announcements
Minimalist Acquisition: Strengthening the Premium Beauty Portfolio
Hindustan Unilever acquisition of Minimalist, a fast-growing premium skincare brand, is seen as a strategic move to tap into the booming market for high-end personal care products. Minimalist has gained significant popularity among urban millennials for its science-backed formulations and transparent branding.
The acquisition aligns with HUL’s long-term strategy of focusing on high-margin segments and addressing changing consumer preferences. However, analysts have noted that while the move is promising, it will take time to reflect in HUL’s financial performance.
Kwality Wall’s Demerger: Unlocking Value in the Ice Cream Business
The demerger of Kwality Wall’s ice cream business is aimed at unlocking shareholder value by transforming the ice cream division into an independent listed entity. The move is expected to allow Kwality Wall’s to focus on its growth trajectory and attract targeted investments.
Analysts believe the demerger could be beneficial for both HUL and KWIL, enabling sharper focus on their respective core businesses. However, they have also flagged potential challenges in the transition phase, including the allocation of resources and management bandwidth.
Subdued Rural Demand: A Key Concern
One of the most significant challenges facing HUL is the slowdown in rural demand, which has traditionally been a key growth driver for the company. Rising inflation and subdued rural income growth have dampened consumer sentiment, impacting the sales of staple products.
To counter this, HUL has been ramping up its rural distribution network and introducing smaller SKUs (stock-keeping units) to cater to price-sensitive consumers. While these efforts have helped stabilize volumes to some extent, a full recovery in rural markets is expected to take longer.
Analyst Commentary and Outlook
Market experts have given a mixed verdict on HUL’s Q3 performance. While some analysts appreciate the company’s strategic initiatives, including acquisitions and demergers, others have raised concerns over its lackluster volume growth and high cost pressures.
Positive Takeaways:
- The acquisition of Minimalist and the Kwality Wall’s demerger are seen as long-term growth drivers.
- The Pureit divestment has helped the company generate one-time gains, boosting its cash reserves.
Challenges Ahead:
- The FMCG giant needs to address slowing rural demand and rising input costs.
- Volume growth in core categories, such as personal care and home care, remains below expectations.
Looking ahead, analysts believe that HUL’s ability to execute its strategic initiatives effectively and capitalize on emerging market trends will be critical in regaining investor confidence. While the long-term outlook remains positive, near-term challenges could weigh on the stock’s performance.
Conclusion
Hindustan Unilever’s Q3 earnings report highlighted a mixed performance, with strong one-time gains offsetting operational challenges. The stock’s nearly 4% decline reflects investor concerns over slowing rural demand, muted volume growth, and rising costs.
However, the company’s strategic moves, including the Minimalist acquisition and Kwality Wall’s demerger, signal a focus on long-term growth and value creation. For now, market participants will closely watch HUL’s efforts to drive volume growth and manage costs in the coming quarters.
