India's largest fast moving consumer goods maker Hindustan Unilever is expected to report a strong growth in the second quarter, helped by 8-9% volume growth, price hikes in some categories benign raw material costs and controlled advertising spends.
Analysts on average expect HUL to report a net profit of Rs 785 crore, up 14% year-on-year, while revenue is seen up 15% at Rs 6,450 crore in July-September, according to a CNBC-TV18 poll.
HUL demerged its FMCG exports business division into a wholly owned subsidiary Unilever India Exports in the fourth quarter. It was reported as a part of the company's results in the year ago second quarter. So the results may not be strictly comparable year-on-year.
Abneesh Roy and Hemang Gandhi of Edelweiss Securities say sales growth will be robust across categories, but there could be some slowdown discretionary foods and personal care.
FMCG firms have benefited from soft raw material costs in Q2, especially in the soaps and detergents segment, where price of key raw material palm oil has decreased 10.4%. Linear Alkyl Benzene (LAB) prices have also declined 1.4% from a year ago, according to brokerage Sharekhan.
This, coupled with the price hikes taken by the company, will help HUL expand its overall margins.
Analysts on average expect HUL's EBITDA (earnings before interest, taxes, depreciation and amortization) to rise 17% at Rs 940 crore, while operating profit margin is seen up 30 bps at 15% in the second quarter.
"HUL continues to benefit from a consistent strategy, pricing power and strong consumption trends," says a report by Morgan Stanley.
KEY THINGS TO WATCH:
-- Sustenance of volume growth in mid to high single digits.
-- Quarterly margins, especially in soaps and detergents and personal products.
-- Performance of the foods business.
-- The company doesn't give specific guidance, so any commentary on the overall environment and the trends, especially post the monsoon will be keenly eyed.
HUL shares have rallied 25% since Q1 results announcement and it has given 65% returns in the last one year. It hit a 52-weeek high of Rs 580 on Oct 16 and was up 0.3% at Rs 565.50 on NSE on Friday morning.
However, current valuations at over 38 times FY13 expected earnings per share and over 34 times FY14 expected EPS are highly stretched and the stock price now is ahead of most brokerages target price.
Morgan Stanley feels, HUL's earnings upgrade cycle is peaking and sees low probability of earnings upgrades from current levels.
"We like the sustained volume momentum in HUL's categories as also the increased aggression in trade coupled with strong innovation pipeline. However, rich valuations and tough comparables in the second half underscore our 'neutral' rating," said Gautam Duggad and Sreekanth PVS of Motilal Oswal.