India’s largest consumer staples firm Hindustan Unilever is set to report its earnings for the second quarter of the current fiscal year on October 23. The high commodity inflation in certain segments, along with muted demand are expected to result in the FMCG giant seeing flat earnings. However, improving rural demand is likely to buoy the result scorecard.
According to a Moneycontrol poll of seven brokerages, Hindustan Unilever is likely to report a revenue growth higher by 4.4 percent on-year, at Rs 15,694 crore. Net profit is likely to come in at Rs 2,654 crore, a half percent fall from Rs 2,668 crore from the corresponding quarter last year.
Earnings estimates of analysts polled by Moneycontrol are in a narrow range, so any positive or negative surprises may elicit a sharp reaction in the stock.
The most optimistic estimate sees HUL’s net profit jumping 1.7 percent on-year, but the most pessimistic projection suggests that net profit might sink 3.3 percent.
What factors are impacting the earnings?
Hindustan Unilever’s revenue is likely to remain flat on account of subdued performance across categories, mainly as a result of tepid demand. However, analysts expect to see greenshoots in the rural segment.
Volume growth: HUL is expected to deliver volume growth of 5 percent, according to various estimates. The gap between value growth and volume growth is likely to come down as HUL has undertaken some price hikes across its portfolio.
Segment performance: The performance across segments is likely to vary. Kotak Institutional Equities sees the Home Care segment growing 5.3 percent on-year growth (up from 4.6 percent in Q1). The Beauty and Personal Care will see 3 percent like-for-like growth driven by personal wash, while growth in the Foods and Refreshments segment will improve to 4.5 percent growth from 1.5 percent in the previous quarter.
Margins: HUL's EBITDA margins might see a margin decline on account of higher ad spends and increased royalty payments to parent, Unilever. Additionally, the discontinuation of distribution of OTC products of GSK will weigh on margins. High commodity inflation, especially in the tea segment, will add pressure to the margins.
What to look out for in the quarterly show?
Analysts will closely monitor demand in metro areas and tier-3 towns. They will also pay attention to raw material prices and their effect on EBITDA margins, as well as the growing competitive pressure from unorganized players.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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