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HUL Q4 Preview: Lower tax, strong operating income may boost profit

Among brokerages, Kotak Institutional Equities expects the maximum 19.5 percent growth in profit for the quarter while Emkay sees 10.4 percent rise in bottomline.

April 30, 2020 / 07:10 AM IST
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FMCG major Hindustan Unilever on April 30 is expected to report double-digit growth in Q4FY20 profit due to a lower tax rate and higher operating income. The expected profit growth range is 10-20 percent YoY.

Among brokerages, Kotak Institutional Equities expects the maximum 19.5 percent growth in profit for the quarter while Emkay sees a 10.4 percent rise in bottomline.

At operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) is likely to grow in the range of 7-17 percent with triple-digit margin expansion, aided by cost measures, lower oil prices and strong gross margin.

"We expect 350 bps YoY expansion in EBITDA margin aided by gross margin expansion (100 bps), operating efficiencies (150 bps) and adoption of Ind-AS (100 bps). Net profit would be aided by a cut in the corporate tax rate," said Kotak Institutional Equities which expects 17 percent growth in EBITDA.

Sharekhan also feels the efficient buying of raw materials would help gross margins to be higher by 74 bps while efficiencies and stringent ad-spends would result in 206 bps improvement in OPM (will also benefit from the change in accounting standards to Ind AS-116).

"Operating profit is expected to grow by 12.7 percent and adjusted PAT is expected to grow by 13.5 percent (will also be aided by lower tax rate)," the brokerage said.

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According to brokerages, revenue from operations in Q4FY20 could increase 2-3 percent with likely volume growth of 3-4 percent compared to year-ago period, but may see some impact of more than a week lockdown in March.

"We model 2 percent revenue growth in domestic FMCG business led by 2.5 percent underlying volume growth (UVG) and flat pricing. On a segmental basis, we bake in 3.3 percent YoY revenue growth for Home Care, 1.8 percent YoY growth for Personal Care and 3.5 percent YoY growth for Packaged Food and Refreshments," said Kotak.

The brokerage expects HUL to have cushioned the impact of COVID-19 by planning in advance and stocking up the channel in anticipation of potential up stocking by consumers ahead of the lockdown.

According to Narnolia, HUL's revenue is expected to grow by 3 percent YoY led by volume growth of 4 percent YoY (versus 7 percent YoY in Q4FY19). On pricing front, the brokerage expects 1 percent YoY decline on the back of price reduction taken in Home care and Personal wash segment (domex floor cleaners, Sanitisers and Lifebuoy portfolio).

Lockdown on account of turbulence caused by COVID-19 is expected to reduce volumes as the production remained hampered due to closure of factories in the last week of Q4FY20, it said.

Key things to watch out for would be an outlook on the pace of rural growth and demand turnaround, outlook on competitive intensity in soaps, raw material cost; volume growth on the wake of COVID-19, and movement in advertising and promotional expenses.

HUL share price reported double-digit return during the March quarter, FY20, and year-to-date periods, rising 19.5 percent, 34.7 percent and 18 percent, respectively.

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first published: Apr 30, 2020 07:10 am