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HUL Q2: Price hikes, volume growth likely to boost earnings

FMCG companies in India have been battling high cost of raw materials for several quarters. Hindustan Unilever raised prices across several product categories over the last few months to offset some of the cost pressures and shore up margins.

October 31, 2011 / 10:25 AM IST
 
 
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Moneycontrol Bureau


FMCG companies in India have been battling high cost of raw materials for several quarters. Hindustan Unilever raised prices across several product categories over the last few months to offset some of the cost pressures and shore up margins.


These price hikes coupled with good volume growth is expected to help the FMCG giant post double-digit earnings growth in the second quarter.


Analysts expect overall revenue could grow 12-14% in July-September, with a volume growth of 7-8% year-on-year and price hikes.


"HUL is likely to continue its healthy volume growth trajectory. Soaps and detergents segment growth is expected to be at 12% and personal products are likely to continue its healthy growth of 19% during this quarter," said brokerage house Emkay Global Financial Services.


However, profit growth will be slower at around 10% as raw material costs will weigh. CLSA Asia Pacific Markets expects higher taxes and lower margins will moderate net earnings growth to just 5%.


Among key input costs, LLP (light liquid paraffin), LAB (linear alkyl benzene), PFAD (palm fatty acid distillate) and Copra have seen prices increase sharply, prompting many FMCG companies to raise product prices. HUL has raised price of Rin detergent, Clear shampoo and Pears soap among others in its FMCG basket.


"We expect sequential increase in soaps and detergent margins due to benefits from price increases and cost control," said Motilal Oswal analysts Amnish Aggarwal and Harit Kapoor.


Price of several raw materials has started cooling or their rise at least has slowed now but it still remains high compared to a year ago. So while gross margins are expected to go up 230 basis points over the April-June quarter, year-on-year margins will decline by 280 basis points, Aggarwal and Kapoor said.

Emkay expects HUL

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