HUL Q3 to see lower impact of price cuts compared to Q2: CIMB

HUL can see some impact on account of lower rural demand, says Varun Lochab, Head of India Research, CIMB Equities.In an interview to CNBC-TV18, he says overall rural consumption has slowed down, and that HUL has performed better compared to its peers.Lochab expects HUL's topline to grow 4.5 percent year-on-year in the December quarter, and operating profits by 7 percent.He says the impact of price cuts on HUL's earnings would be less in the December quarter compared to June quarter.CIMB is bullish on ITC, Arvind and Titan.Below is the verbatim transcript of Varun Lohchab’s interview with Latha Venkatesh & Sonia Shenoy on CNBC-TV18.Latha: What is the expectation from the big boy, what are you expecting in terms of volumes, revenues and margins most importantly?A: In terms of volume growth this quarter we believe it will be somewhere around 6 percent may be between 5-6 percent. There should be some impact of the Tamil Nadu floods which is there, and along with that based on our channel checks for most of the companies we have seen some further weakness in rural demand for the staple companies.So, given Lever has a high salience of rural, we believe there could be some impact. If you see last quarter their volume growth was almost touching 7 percent. Sequentially, it should be a bit slower but between 5 and 6 percent. In terms of revenues, we believe it will be around 5 percent.Sonia: If you take the average of the last four to five quarters, HUL has been stuck in this 6-7, 5 percent volume growth for so long. Are they any signs that it could get out of this band at least in this particular fiscal?A: Looks unlikely, I would say that Unilever has probably done a good job being able to stay in this band when the overall consumption has slowed down especially rural. So, if you look at most of the other consumer companies in staples their volume growth would have come down in the last three to four quarters to some extent or stayed flat.So, Unilever given their size and rural have done pretty well in terms of execution to stay in that band, this year looks unlikely in our view to get out of that band on the upside. All hopes are on FY17, if we see better monsoons and kind of some rural revival.The good part is urban is at least not deteriorating any further for most of the companies.Latha: What are you expecting may be in terms of earnings before interest, taxes, depreciation and amortization (EBITDA) margins and EBITDA growth itself?A: EBITDA margins should expand, though the expansion will not be very strong in our view because they will be reinvesting a bit in advertisement and promotion (A&P). We are expecting around 50 basis points sort of EBITDA margin and therefore their EBITDA growth should be around 7 percent odd. That is what we are expecting in terms of topline in EBITDA, so revenue growth of 4.50 percent and EBITDA growth of around 7 percent.For entire interview, watch accompanying video...