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Last Updated : Feb 06, 2012 12:18 PM IST | Source: Moneycontrol.com

What to expect from HUL Q3 earnings?

India's largest fast moving consumer goods company Hindustan Unilever is expected to report a robust set of numbers for October-December, helped by staggered price hikes across its categories. The company reports third quarter results on Monday.

 
 
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Moneycontrol Bureau


India's largest fast moving consumer goods company Hindustan Unilever is expected to report a robust set of numbers for October-December, helped by staggered price hikes across its categories. The company reports third quarter results on Monday.


FMCG companies have so far reported mixed results for the last quarter. Cigarettes to hotels and FMCG major ITC reported a market beating 22% rise in net profit. However, its volumes in the cigarettes segment disappointed the street.


HUL's smaller rival Marico on Thursday reported strong earnings for the quarter, sending its stock surging. Its net profit was up 21%, and sales rose 29%. Volumes also rose 20%, despite sharp price hikes taken by the company.


HUL too has been raising prices across segments to offset some of the increase in input costs. This will help HUL profits rise 15-18% year-on-year while net sales are also seen going up at a similar rate in the third quarter. Religare Institutional Research has forecast a 23.5% growth in HUL's net profit and 16% sales growth.


"(Expect) continuation of volume growth at 9% year-on-year despite double-digit growth in Q3. With healthy growth in soaps & detergents and personal products, expect revenue growth of 16% YoY to Rs 5,930 crore," Emkay Global Financial Services said.


HUL's advertising and promotion spends in the quarter were also benign and that will help margins, which have been under pressure for some quarter now given intense competition and high input costs.


"We expect HUL's EBITDA margin to expand by 40 bps to 14.5% despite gross margin contraction owing to savings in ad spends and other expenditure," brokerage Motilal Oswal said in its report.


Emkay expects HUL's margins will expand by 55 basis points in the quarter to about 14.7%.


Key points to watch for:


- Volume growth in the quarter, especially given the price hikes it took across segments. Many analysts expect it will maintain a volume growth of high-single digits.


- Margins, especially, in the highly competitive soaps and detergents space.


- Outlook going ahead. Motilal Oswal expects HUL will continue to raise prices in the fourth quarter to pass on the impact of high raw material prices and the rupee depreciation in the third quarter.


- Commentary on growth expectations going ahead. Strong rural appetite for FMCG products has helped most companies boost sales. However, some analysts like Angel Broking's Sreekanth PVS say companies now face a risk of slowdown due to the constant price hikes.


HUL shares closed up 2.7% at Rs 401.40 on NSE on Friday. The stock is up near 18% since September 30, while the wider Nifty index is up about 8% over the same period.


Angel's Sreekanth says most FMCG companies are trading at peak valuations following the rally in the third quarter. He is "underweight" on the FMCG sector and has a "neutral" rating on HUL.


Motilal Oswal too has a "neutral" rating on HUL, while Emkay advises a "hold". Religare has a "buy" on the stock with Rs 425 target price.

Nachiket Kelkar
nachiket.kelkar@network18online.com

First Published on Feb 4, 2012 03:07 pm
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