Hindustan Unilever is expected to report decline in every earnings parameter in quarter ended June 2020 largely due to COVID impact on volume growth, but the same could be better on a sequential basis.
Overall numbers are not comparable due to merger of GSK Consumer's health food drinks (HFD) business during June quarter.
Brokerages largely expect 1-3 percent decline in June quarter profit as well as revenue as its core business is likely to have impacted badly due to lockdown wherein people seems to have focus more on essential items than luxury products.
"The core business of HUL is expected to decline by 13-14 percent affected by lower demand for personal care, skin care products and ice creams during the quarter. Sales volumes are expected to be lower by 11-12 percent. GSK Consumer's HFD business is expected to decline in mid-single digits," said Sharekhan which sees 1.6 percent YoY decline in profit and 2.9 percent fall in revenue.
Kotak Institutional Equities feels about 70-75 percent of HUL's portfolio that can be classified as essentials grew marginally during the quarter, whereas balance 25-30 percent (non-essential/discretionary) comprising skincare, hair care, color cosmetics, deodorants, ice-cream and out-of-home consumption products (tea/coffee vending machines) declined sharply.
The brokerage expects 12 percent decline in revenues (down 2 percent YoY including GSK-CH acquisition) in the domestic FMCG business led by 10 percent decline in underlying volume growth.
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"On a segmental basis, we bake in 5 percent YoY revenue growth for Home care, 22 percent YoY decline for Personal care and 20 percent YoY decline for packaged food and refreshments (organic basis)," said Kotak.
HUL's gross margin is expected to be supported by lower raw material cost and GSK Consumer acquisition, but EBITDA margin may contract 100-200 basis points YoY, according to brokerages.
Kotak expects 75 bps YoY expansion in gross margin aided by raw material tailwinds and GSK-CH acquisition partly offset by product mix change. "EBITDA margin would decline 185 bps YoY (off high base) due to negative operating leverage and change in product mix (lower salience of high-margin personal care categories)," said the brokerage which sees EBITDA falling 9 percent.
According to Sharekhan, operating profit margin is expected to be lower by 104 bps due to change in revenue mix as lower SKUs will see higher sales.
HUL share price fell 5 percent during the quarter ended June 2020 and rallied 21.3 percent year-to-date against 10 percent rally and 4 percent gains in Nifty FMCG index, respectively.
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