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HUL may report double-digit growth in Q2 led by GSK Consumer

Watch out for outlook on the pace of rural growth, demand turnaround and raw material cost, says Motilal Oswal.

October 21, 2020 / 09:06 PM IST

FMCG major Hindustan Unilever is expected to report strong double-digit growth in the September quarter following the merger of GSK Consumer Healthcare but organic growth could be in a single digit compared to the year-ago period.

Consolidated revenue and operating profit growth could be more than 15 percent for the quarter ended September 2020 YoY, while profit is expected to be more than 10 percent YoY.

"We model 2.7 percent growth in organic revenues (up 15.3 percent YoY including GSK Consumer Healthcare acquisition) in the domestic FMCG business led by 2 percent growth in underlying volume growth (organic). We expect improvement across most segments, including personal care. Colour cosmetics, deodorants and out-of-home consumption categories continue to be weak," said Kotak Institutional Equities, which sees around 10 percent YoY rise in profit.

The brokerage sees 1.5 percent growth YoY in personal care, 4 percent in the home-care segment and 4 percent in the packaged food and refreshments segment (organic). "A price-increase led growth in the tea segment will be offset by weak sales of out-of-home consumption products. GSK Consumer Healthcare portfolio would witness about 4 percent decline in sales due to disruption at two facilities."

HDFC Securities also expects net revenue growth of 15 percent YoY driven by GSK acquisition. "Core biz revenue is expected to grow by 1 percent YoY."

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Motilal Oswal sees domestic volume growth (including GSK) of 10.5 percent YoY.

Watch out for the outlook on the pace of rural growth and demand turnaround and outlook on competitive intensity and raw-material cost, the brokerage house said.

On the operating front, the gross margin is expected to see a triple-digit contraction due to high inflation in the tea segment, hence the EBITDA margin may not see significant expansion YoY but EBITDA could grow in double digits.

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Kotak expects 160 bps YoY contraction in gross margin, mainly due to high inflation in the tea segment, pass-on of some raw material benefits in homecare, product mix and partly offset by GSK Consumer acquisition.

"EBITDA margin would be flat as tailwinds from GSK acquisition (about 100 bps) would be offset by headwinds in tea, product mix change and investments in business (including A&P spends)," said the brokerage.

HUL shares fell more than 5 percent in the September quarter as well as year-to-date (FY21).



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first published: Oct 20, 2020 08:15 am
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