HUL Q2 Preview: Profits may decline 5% YoY due to GST transition, causing weak demand to impact profits

FMCG giant Hindustan Unilever Ltd (HUL) is expected to post a subdued performance in the September quarter as the recent GST rate cuts and prolonged monsoon disrupted sales momentum even as weak underlying demand and destocking weighed on volumes. According to an average of six brokers, HUL’s revenue is likely to grow only 1% year-on-year, while profits could fall 5% year-on-year, due to margin compression, lower other income and temporary supply chain issues.

Analysts said the near-term weakness is largely transitory, with the business likely to recover in the coming quarters once the GST impact normalizes.

GST disruption slows growth

Brokers expect that nearly 40% of HUL’s product portfolio – including soaps, shampoos, detergents, toothpaste and packaged foods – will have been affected by the GST transition from 18% to 5%, which has led to near-term destocking and inventory rebalancing. Kotak Equities said HUL’s business is expected to be near flat to low single digits, with destocking across multiple product categories impacting overall revenue growth. “We are building in underlying volume and revenue growth of 0.5% due to the transient impact of the GST rate cut,” the broker noted, estimating a 7.6% decline in PAT due to lower other income and weaker operating leverage.

Nuvama also flagged temporary disruptions due to the GST shift, expecting flat underlying volumes and 1% revenue growth for Q2FY26. The broker expects EBITDA to decline 5% year-on-year as gross margins decline 159 basis points to around 50%, driven by lower prices passed on to consumers.

Margin pressure continues

Margins are likely to remain under pressure as HUL adjusts prices and spends more on promotions to clear older inventories. Kotak expects EBITDA margin to decline 140 basis points year-on-year to 22.1%, while Nuvama pegs it at 22.4%, in line with the company’s 22-23% range. Commodity trends remain mixed: palm oil and crude oil-based inputs have shown volatility, while tea prices have softened and coffee remains near a 52-week high. “Lower input costs in certain categories will be partially offset by higher brand investments,” JM Financial said, adding that prolonged rains had an impact on skincare and seasonal products.

Weak demand, but recovery underway

The general demand development remains weaker than in the previous quarter. Nuvama said categories such as skin creams and sunscreens saw lower sales due to the delayed monsoon, while tea, salt and health food drinks posted modest gains. Motilal Oswal expects revenue growth of 2%, led by volume growth of 2.5%, but expects gross margins to decline by 90 basis points as competitive intensity increases.

HSBC said GST-induced disruptions and trade incentives would limit near-term realizations, but maintained stable margin prospects of around 22%. It expects EBITDA of Rs 3,450 crore, down 6% YoY, and down 6% in PAT.

Despite a weak second quarter, analysts remain positive on HUL’s medium-term prospects, citing structural demand recovery, softer input costs and the GST-driven price rationalization that could boost affordability in the coming quarters.

“The fiscal and monetary environment remains supportive, and HUL’s pricing power and portfolio strength position it well for a recovery in FY26,” Nuvama said.

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