Nomura has maintained its ‘Buy’ rating on Hindustan Unilever but reduced its target price to Rs 2,600 from Rs 2,900 in its February 13 report. The revised target implies an upside of about 7.9% from the closing price of Rs 2,410 mentioned in the report. The brokerage said it has lowered its earnings estimates for FY27 and FY28, trimmed its valuation multiple, and factored in slower pricing growth.
While the December quarter was better than expected and management guided for gradual improvement, Nomura said delivering double-digit earnings growth in FY27 “might be touch-and-go.”
1. Earnings estimates reduced for FY27 and FY28
Nomura has cut its profit forecasts for the next two financial years.
“We reduce our FY27F/28F EPS estimates by 2.5%/4% to model lower pricing growth and constant margins,” the brokerage said.
In simple terms, Nomura expects profit growth to be slower than it had earlier projected. The downgrade is not because of weak quarterly performance, but because pricing power is expected to stay limited and margins are assumed to remain broadly steady.
The brokerage now expects earnings to grow at about 9% annually between FY26 and FY28. That pace is lower than what the market has historically seen from the company during stronger growth cycles.
This lower earnings outlook directly led to a reduction in the target price.
2. Pricing growth expected to remain muted
A key reason behind the earnings downgrade is weaker pricing expectations.
“HUL…expects pricing growth to remain in the low-single digits in FY27,” Nomura said in the report.
For a large FMCG company, pricing plays an important role in revenue and profit expansion. If price hikes are small, overall growth depends heavily on volume improvement.
Nomura noted that commodity trends are expected to be stable to inflationary, which would result in only low-single-digit price increases for the year.
With limited scope for price-led growth, profit expansion may remain moderate, it further added.
3. Valuation multiple cut to 50x from 55x
Nomura has reduced the valuation multiple it assigns to the stock.
“We value HUL at 50x (55x previously), a 10% discount to its 10-year average P/E due to a lower growth profile vs the past,” the brokerage said.
The report shows that the 10-year historical average P/E multiple is 55x. Nomura has applied a 10% discount to that level.
This change reflects the brokerage’s view that growth in the coming years may not match earlier periods.
Even after the cut, Nomura maintained its ‘Buy’ rating, stating that the stock is trading near one standard deviation below its 10-year trading average.
4. Double-digit EPS growth in FY27 may be difficult
Nomura specifically flagged the risk of earnings growth staying below 10%.
“Delivering double-digit EPS growth in FY27 might be touch-and-go and in case of a miss it would be the four consecutive years of below-double-digit growth,” the report said.
This statement signals that while improvement is visible, acceleration may not be strong enough to return to double-digit earnings expansion quickly.
The brokerage said that although the December quarter was better than expected, growth momentum needs to strengthen further.
The concern over sub-10% growth played a role in trimming the valuation and target price, it further added.
5. Demand recovery seen as gradual
Nomura acknowledged that the third quarter showed improvement.
“3QFY26: Volume growth of 4% better than our/consensus ests of 3%/2%; sales growth of 5% was better than our/consensus ests of 4%/2%; OPM in line with guidance at 23.7% (ex-ice cream),” the brokerage wrote.
The company told Nomura that the macro environment showed steady demand improvement and is expected to remain supportive due to lower inflation, a repo rate cut by RBI, GST 2.0 and the Union Budget’s focus on investment-led growth.
“HUL reiterated its outlook for 2HFY26 to be better than in 1HFY26, and FY27 to be better vs FY26,” the brokerage said.
However, Nomura added that demand improvement may be gradual and may not be strong enough to create significant earnings acceleration immediately.
6. Growth outlook lower than in earlier years
Nomura linked its lower target price to what it described as a reduced growth outlook.
The brokerage now expects earnings to grow at about 9% annually over FY26–FY28.
It applied a 10% discount to the company’s historical valuation multiple due to a “lower growth profile vs the past.”
While structural drivers such as premiumisation, quick commerce expansion and portfolio rotation remain in place, Nomura’s revised numbers reflect moderate near-term earnings growth rather than a sharp rebound.
Despite cutting the target price, Nomura maintained its ‘Buy’ rating, indicating it still expects the stock to outperform the benchmark over the next 12 months.
Conclusion
Nomura has retained its ‘Buy’ call on Hindustan Unilever but reduced its target price to Rs 2,600 from Rs 2,900 after lowering earnings forecasts, trimming pricing assumptions, and cutting the valuation multiple to 50x.
The brokerage said pricing growth is likely to remain in low single digits and that achieving double-digit EPS growth in FY27 may be challenging. While demand is improving and the December quarter beat estimates, Nomura’s revised target reflects a more moderate earnings outlook.