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Hindustan Unilever's Q4 Profit Slump: A Temporary Stumble or a Growing Concern?

Samuel ReedThursday, Apr 24, 2025 2:33 am ET

39min read

Hindustan Unilever Limited (HUL), India’s FMCG giant, reported a 3.7% year-on-year decline in consolidated net profit to ₹2,464 crore for Q4 FY25, marking a challenging end to its financial year. The results, coupled with a 4% drop in its share price post-announcement, have raised questions about the sustainability of its growth trajectory amid margin pressures and shifting consumer dynamics.

The Numbers: Growth Amid Marginal Pressures

While HUL’s top-line revenue grew 3.5% YoY to ₹15,979 crore, the net profit decline highlighted underlying challenges. The EBITDA margin contracted by 30 basis points to 23.1%, driven by rising input costs for commodities like tea and palm oil, as well as aggressive pricing in key categories. Gross margins also fell, dropping 160 bps YoY to 49.8%, signaling the scale of cost inflation.

Segment performance was mixed:
- Home Care grew to ₹5,818 crore, fueled by premium liquid formulations and fabric washes. However, pricing cuts to offset commodity deflation dented margins.
- Beauty & Wellbeing expanded to ₹3,113 crore, with hair care driving double-digit growth, though skincare lagged due to weak mass-market demand.
- Foods dipped slightly to ₹3,886 crore, impacted by category headwinds in nutrition drinks and transitional pricing adjustments.

Why the Profit Decline? Key Drivers

Margin Erosion from Input Costs: Rising raw material prices, particularly for tea (a key input for beverages) and palm oil derivatives, squeezed gross margins. HUL’s management noted that passing cost benefits to consumers via price cuts exacerbated the issue.
Urban Demand Slowdown: Weak discretionary spending in urban areas hurt high-margin categories like soaps and premium home care products. CEO Rohit Jawa acknowledged that “mid-single-digit volume growth was partially offset by negative pricing/mix dynamics.”
Strategic Costs: The ₹2,706 crore acquisition of D2C brand Minimalist and the divestment of Pureit (water purifiers) added one-time expenses, though these moves aim to reposition HUL toward high-growth segments.

Share Price Reaction: A Vote of Caution

HUL’s shares fell 4% to ₹2,326.60 post-results, reflecting investor skepticism about margin resilience. Analysts highlighted concerns:
- Near-Term Margin Pressure: Morgan Stanley projects EBITDA margins to remain in the 22-23% range in FY26, with commodity costs and competitive pricing persisting.
- Urban Demand Risks: HDFC Securities noted that “discretionary FMCG categories remain vulnerable to job market anxieties and inflationary pressures.”

Looking Ahead: Can HUL Rebound?

CEO Jawa expressed optimism about “gradually improving demand conditions” in FY26, citing strategic moves:
- Portfolio Restructuring: The acquisition of Minimalist targets the booming D2C beauty market, while the demerger of its ice cream business (via a scheme with Kwality Wall’s) could unlock value.
- Channel Innovation: Investments in e-commerce and modern trade channels aim to offset urban slowdowns.
- Dividend Payout: A total dividend of ₹53 per share (including a ₹24 final dividend) underscores HUL’s strong cash flow, providing some comfort to investors.

Conclusion: A Stock for the Long Run?

HUL’s Q4 results reflect a broader FMCG sector challenge—balancing growth with margin management in a cost-driven environment. While the profit decline and margin contraction are concerning, the company’s 2% underlying sales growth, strategic portfolio shifts, and robust dividend policy suggest resilience.

Crucially, HUL’s market leadership in categories like home care and personal care, combined with its ability to innovate (e.g., Surf Excel Smart Shots, Magnum Pistachio), positions it to capitalize on eventual demand recovery.

Investors should monitor two key metrics:
1. EBITDA Margin Stability: If margins hold above 22%, it signals effective cost controls.
2. Urban Sales Turnaround: A rebound in discretionary spending could revive premium category growth.

For now, HUL’s shares appear to price in near-term risks, but its structural strengths and dividend discipline make it a hold for long-term investors. The question remains: Can HUL’s strategic bets outweigh the headwinds? The answer may hinge on how quickly India’s urban consumer sentiment recovers—and whether HUL’s innovations can command premium pricing in a cost-conscious market.

Final Take: A 4% dip is a blip, not a collapse. HUL’s fundamentals remain intact, but margin and demand trends will determine its next move.

Data sources: HUL Q4 FY25 results, brokerage reports from Morgan Stanley, HDFC Securities, and company presentations.

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