Shares of Hindustan Unilever Ltd declined as much as 3.8% on Thursday, as investors focused on weakening core profitability despite a sharp rise in reported net income fueled by a non-recurring item.
The consumer goods giant posted a 121% surge in quarterly net profit to 66.03 billion rupees for the period ending December 31. However, this was primarily due to a one-time gain of 46.11 billion rupees from the demerger of its Kwality Wall's ice cream business. Excluding this benefit, profit after tax from continuing operations fell 30% year-on-year to 21.18 billion rupees.
Margin Pressure and Strategic Shifts
Operating margins contracted by 70 basis points to 23.3%, while advertising and promotion expenses increased 2.4% to 15.22 billion rupees. The company is implementing a significant marketing overhaul under its new "Unified India" strategy, which includes restructuring business units and appointing dedicated chief marketing officers.
Underlying sales growth stood at 5%, with volume growth at 4%. CEO Priya Nair noted early signs of demand recovery but acknowledged ongoing challenges. "Health & Wellbeing is an important growth vector for us," Nair stated, as the company reshapes its portfolio. This includes acquiring the remaining stake in OZiva maker Zywie Ventures for 8.24 billion rupees and divesting its holding in Wellbeing Nutrition.
Analyst and Market Reaction
The reported profit significantly exceeded the Bloomberg consensus estimate of approximately 27.7 billion rupees, yet the stock's decline reflected market concern over reliance on one-time gains rather than sustainable operational improvement. Analysts highlighted persistent margin pressures from volatile commodity costs and competitive pricing in key segments like detergents and personal care.
Goldman Sachs maintained a buy rating with a 12-month price target of 2,800 rupees, citing a gradual core performance pickup but noting HUL still lags some peers. The company faces intense competition from rivals like Dabur India and Marico, alongside private-label expansion in modern retail and e-commerce.
For investors, the key question remains whether HUL can drive consistent volume growth, manage pricing effectively, and control brand investment costs to improve profitability beyond one-off accounting benefits.