HUL's volume numbers a worry, but will improve: Analysts

Hindustan Unilever’s first quarter results came below Street expectations. Its net profit was at Rs 1,174 crore (up 9.8 percent) in the quarter ended June 2016. Speaking to CNBC-TV18, Navin Kulkarni of PhillipCapital said the company's volume numbers were lower-than-expected and that is a worry for the stock.

Backing Kulkarni, Sanjay Manyal of ICICI Direct said volume growth has been a disappointment. However, impact of good monsoons and ad spends will help the company going forward. He believes HUL will be a beneficiary on the back of better growth expected in the coming quarters this year.

Not scaling down the earnings estimates, Manyal says he expects HUL's margins to grow at 18 percent and sales to grow 7-8 percent going forward. Furthermore, Manyal said fast-moving consumer goods (FMCG) companies will see volumes growth in the second half this year onwards.

He has given a target price of Rs 1000 for the stock which will not be downgraded at all.Below is the verbatim transcript of Naveen Kulkarni and Sanjay Manyal’s interview to Sonia Shenoy and Mangalam Maloo on CNBC-TV18.Sonia: Absolutely flat performance on the topline; no topline growth at all, anemic performance on volume growth, just about 4 percent odd. What are your initial thoughts?Kulkarni: The volume numbers are slightly lower than what we were expecting. So, I would say the results on a first case basis, look a little weak.Sonia: The EBITDA margin has come in at 20.1 percent so that at least is higher than what the street was estimating and higher than what we have seen same time last year, 20.1 percent compared to 18.6 percent. What are your thoughts on the margins?Kulkarni: Margins we were expecting them to expand in this quarter because there were some cuts on the dealer commission. However, volume growth is still not picking up so that is a big worry for the stock. Sonia: How did you read into the numbers and more importantly the management commentary where they expect a near-term outlook to remain muted? How worried would you be from here on?Manyal: Volume growth has been a bit of disappointment but what I understand there has been changes because of the Indian Accounting Standards (IND AS) and probably the promotion expenditure as been now netted off from the sales, we still have to check that whether it has happened or not. However, what I understand, yes, 4 percent looks a bit of disappointment but I think the impact of the good monsoon and the rural growth and this huge spend in the rural India which has been happening now probably will be reflected in the quarter three or quarter two numbers.Mangalam: The impact of the good monsoon will that come to HUL or do you the competitive arena getting much more rife because incremental market share looks like a bit of a problem right? Not a lot of growth seen in their key segments out there as well we have seen a bit of decline as far as margins are concerned too?Manyal: HUL will be the beneficiary because out of the total 8.4 million outlets it has presence in 7.2 million retail outlets and the maximum rural presence has been there by HUL, so it has to be the beneficiary. We have seen in past in 2010-2011 specifically when the huge government spend happened in rural India, simultaneously when the monsoon was also good into 2010-2011 there was a 11 percent on an average volume growth for HUL in three consecutive years. So, we are not expecting that high volume growth but still we are expecting better than the 4-5 percent currently.