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Jan 22, 2013, 03.03 PM IST | Source: Moneycontrol.com

Here's what to expect from HUL Q3 earnings

Hindustan Unilever, the largest consumer goods company in India, will report earnings for the Oct-Dec quarter on Tuesday. Its rival ITC last week reported better-than-expected results, aided by price hikes in cigarettes and a strong growth in its non-cigarette FMCG business.

Pragya Bhardwaj

Research Analyst, CNBC-TV18

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Moneycontrol Bureau

Hindustan Unilever , the largest consumer goods company in India, will report earnings for the Oct-Dec quarter on Tuesday. Its rival ITC last week reported better-than-expected results, aided by price hikes in cigarettes and a strong growth in its non-cigarette FMCG business.

HUL, the subsidiary of Anglo-Dutch Unilever Plc, is expected to report a net profit of Rs 882 crore, up 16 percent year-on-year, while net sales are seen up 13 percent at Rs 6,597 crore, according to a CNBC Awaaz poll.

Post the second quarter results, the company had said there was some slowdown in discretionary spending. So the street will be keenly eyeing volume numbers for the quarter.

Several analysts expect it to report a single digit volume growth, but the overall double-digit revenue will be driven by price hikes it took in the quarter.

"Q2 volume growth of 7 percent YoY came in below street expectations, with the company saying that there was some slowdown in discretionary parts of the portfolio and the company faced issues in certain channels. We believe this will be the most important number to watch in the Q3 results as well," note Manish Jain and Anup Sudhendranath of Nomura Financial Advisory and Securities India.

The Nomura analysts expect HUL to report a volume growth of 7 percent in Oct-Dec as well.

ICICI Securities analysts Anand Mour and Gagan Borana feel HUL's volumes will grow 8 percent. The overall revenue growth is seen around 14 percent, driven by 19 percent growth in HPC business and 22 percent growth in soaps and detergents.

Its EBITDA (earnings before interest, taxes, depreciation and amortization) margin is seen improving to around 17 percent from 16.3 percent in the year ago quarter.

Key things to Watch

-- Volume growth in the quarter
-- Growth in segments -- Soaps & Detergents, oral care, beverages among others
-- Advertising spends in the quarter and plans for Q4 and beyond
-- Q3 Margins
-- Price hikes taken during the quarter and the trends going ahead
-- Overall demand trends over the next few months (The company doesn't give specific guidance)


Stock Watch

HUL shares closed up 1.4 percent at Rs 497.25 on NSE on Monday. The stock is down around 9 percent since September-end, underperforming the wider Nifty index, which has gained around 7 percent.

While Nomura is "neutral" on HUL, ICICI Securities and Brics have a "reduce" rating on the stock.

"HUL trades at 35 times FY14 earnings. Given the company's ability to continuously pass on the rise in input costs, there is likely to be an improvement in its gross margin. However, increased competition should restrict the expansion in the company's operating margin," said Brics analyst Sachin Bobade.

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