Here's what to expect from Hindustan Unilever Q4 earnings

Moneycontrol Bureau

Hindustan Unilever, the largest fast moving consumer goods company in India, will report fourth quarter earnings  on Monday, amid signs of a slowdown in discretionary spending. So the street will be keenly eyeing its performance, especially, in the personal care and foods segment.

HUL, a unit of Anglo-Dutch Unilever Plc, is expected to report a quarterly revenue growth of 11-13 percent year-on-year, while net profit is likely to grow 11-15 percent, analysts say. Volume growth is likely to remain subdued around 5-6 percent.

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"Some moderation could be witnessed in discretionary spends like foods and personal care. Sales growth in soaps and detergents could be under pressure due to a muted volume performance,” said Mehernosh Panthaki of HDFC Securities.

HSBC Global Research infact feels HUL faces a slowdown in volume growth for at least the next two quarters.

Recently announced hike in royalty it pays to the parent Unilever and a rise in tax may also hurt near-term earnings growth, feels HSBC analyst Amit Sachdeva.

Cost of several raw materials, like palm oil for instance, have declined over the last few months and that coupled with the price hikes taken by the company is expected to help margin expansion.

However, advertising & promotional spends, which have remained at elevated level, will keep the margin growth in check.

“HUL will continue to register gross margin gains, aided by price hikes and lower raw material prices; expect EBITDA margin to strengthen 20 bps YoY,” said Kotak Securities analyst Ritwik Rai.

KEY THINGS TO WATCH

-- Current demand environment, especially in discretionary categories

-- Volume growth in the fourth quarter

-- EBITDA margins

-- Outlook for the first quarter and FY14

-- Pricing actions taken during the quarter and strategy going ahead

-- Comments on input costs in Q4 and the road ahead

-- New product launches/foray into new categories etc

STOCK WATCH

HUL shares closed down 2.8 percent at Rs 465.05 on NSE on Friday. The stock is down more than 11 percent since Dec 2012-end, underperforming the wider Nifty index, which is down just 0.5 percent over the same period.

"The key issue surrounding the stock has been the volume growth slowdown from 8-9 percent to 5 percent last two quarters, which is expected to recover to 6-7 percent in FY14,” said HSBC's Sachdeva.

HSBC has an “overweight” rating on the maker of Lux soap, Surf detergent and Bru coffee with a target price of Rs 552.
 
However, some others like Emkay Global Financial Services, think otherwise.

Emkay says current FMCG sector valuations are at significant premium to 10 year and 5 year average valuation and it is not expecting the consumer space to re-rate any further. HUL is one of its “top avoid” ideas.

Nachiket Kelkar
nachiket.kelkar@network18online.com