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Q3 preview: HUL may report double-digit growth in profit

HDFC Securities also agreed with Kotak, saying underlying volume growth could be 4 percent on base of 10 percent in Q3FY19 and 5 percent in Q2FY20.

January 31, 2020 / 09:15 AM IST
 
 
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FMCG major Hindustan Unilever (HUL), on January 31, is likely to report double-digit profit and EBITDA growth year-on-year in quarter ended December 2019.

Profitability is largely driven by lower corporate tax cost, while cost saving program and premiumization agenda may support EBITDA and margin.

Revenue is seen rising in the range of 5-6 percent YoY, with volume growth around 3 percent in Q3FY20.

"We model 6 percent revenue growth in domestic FMCG business led by 4 percent underlying volume growth (UVG) and 2 percent price-led growth. On a segmental basis, we bake in 8 percent YoY revenue growth for home care, 4 percent YoY growth for personal care and 8 percent YoY growth for packaged food and refreshments," said Kotak Institutional Equities which sees 18.4 percent growth in profit YoY and 21 percent in EBITDA YoY.

HDFC Securities also agreed with Kotak, saying underlying volume growth could be 4 percent on base of 10 percent in Q3FY19 and 5 percent in Q2FY20, while PhillipCapital expects 3 percent volume growth on delayed season impacting winter portfolio, rural slowdown, liquidity challenges in trade channel.

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Margin expansion is likely to be in the range of 100-200bps YoY on operating efficiencies, brokerages feel.

"Cost saving program combined with high other expenditure in the base quarter will lead to EBITDA margin expansion of 210bps YoY," said Edelweiss which sees revenue/profit/EBITDA growth at 4.5 percent/13.1 percent/14.7 percent YoY.

HDFC Securities built in 202bps increase in gross margin (down 76bps in Q3FY19 and up 251bps in Q2FY20). "Cost control initiatives will continue to benefit, we expect like-to-like EBITDA margin to expand by 137bps YoY (up 185bps in Q3FY19 and up 191bps in Q2FY20)."

Key things to watch out for would be consumer demand environment outlook, improvement in rural business, impact of premiumization and new product launches, sustainability of cost saving initiatives, performance of Ayush and WIMI growth, and GSK and HUL merger update.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jan 31, 2020 09:15 am

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