The majority of the FMCG companies are expected to report low-to-mid-single-digit volume growth. The sector as a whole is expected to see muted volume growth. Analysts claim that August of this year had the lowest rainfall deficit of any month in over a century, measuring at 36%, which hindered the recovery of rural areas.

“Volume growth shall be subdued with most companies likely to turn in low-to-mid-single-digit volume growth. August this year recorded the lowest rainfall in more than 100 years with a 36% deficit, thereby impeding rural recovery,” said brokerage Nuvama in its report.

Hindustan Unilever’s revenue is expected to to moderate on the backdrop of price reductions, price hikes for anniversarization, and a delayed festive season.

Based on average estimates from four brokerages, revenue for the quarter ending in September is expected to be in the range of 4%-6%, while profit after taxes is expected to be in the range of 2% to 8%.

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The FMCG company posted a standalone net profit for the quarter ended June 30, 2023 at ₹2,472 crores – up 8% from ₹2,289 crores in the year ago period. Total sales standalone came in at ₹14,931 crores, a growth of 7% during the quarter.

On a consolidated basis, profit after tax rose 7% to ₹2,556 crore in the first quarter ended June 30, 2023 as compared to a consolidated net profit of ₹2,391 crore in the same quarter last fiscal, Hindustan Unilever said in a regulatory filing.

Also Read: HUL Q1 results: Net Profit rises 8% to come in at ₹2,472 crore

What analysts anticipate from HUL’s Q2FY24 is as follows:

Axis Securities

The brokerage states that growing ad expenditures will balance 470 basis points of growth in gross margins year over year (YoY) by a flattening of earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin increase. Growth in PAT will correspond with growth in EBITDA. Trends in raw materials, competitive intensity, and the prospect for demand in rural versus urban areas are the main metrics to watch.

Kotak Institutional Equities 

According to the brokerage’s analysis, it is predicting 3.2% year-over-year increase in revenue (as compared to +6.1% in 1Q) and 3% year-over-year growth in UVG (as compared to 3% in 1Q). The price cuts by HUL should have an effect on topline growth (flat pricing year over year), and the late festive season may slightly hinder volume growth.

“We expect (1) a moderation in HC growth to 4% (versus 10% in 1Q) due to price cuts (or anniversarization) in the laundry portfolio, (2) moderation in BPC to 2% (versus 4.4% in 1Q) owing to price cuts in soaps and (3) continued weakness in F&R growth to 4% (versus +5% in 1Q); we expect high inflation to weigh on demand in HFD (exacerbated by dairy inflation) and consumer downtrading to loose tea. We expect weakness in volume growth to settle down by 2Q/3Q as channels fully reflect low-price offerings and consumers see price cuts benefits,” the brokerage said in its report.

Also Read: Stock to Watch: Dabur India in focus over cancer allegations in US, GST tax evasion notice

Nuvama Institutional Equities

The brokerage claims that while demand in urban areas continues to lead, demand in rural areas is essentially on the rise. In rural areas, the month of July exhibited a negative CAGR over two and three years. 

The unsatisfactory monsoon in August impacted demand. The growing number of small businesses in the tea and detergent bar industry has increased competition. This year’s late festivities are expected to cause the brokerage to predict that Diwali demand would move up into October, making it more noticeable in Q3FY24.

“We expect revenue/EBITDA/PAT to increase by 4.5%/7%/2.9% YoY. We expect revenue growth of 4.5% YoY to be majorly driven by volume growth (expect it to be 4%). We expect pricing growth to be 0.5% YoY due to price reductions in soaps, shampoos and laundry (HPC) and some pricing in tea, HFD and coffee.

We expect gross margins to expand by about 303bp YoY to 48.8% on back of moderation in raw material inflation. However we expect EBITDA margins to expand by merely nearly 56 basis points YoY at 23.8% on back of HUL being aggressive on A&P (expects to be 9.8% of sales) with media intensity now back to pre covid levels. Overall, Q2FY24 demand is stable with trends similar to Q1FY24, and we expect gradual recovery in volumes H2FY24 onwards,” the brokerage said. 

Phillip Capital 

“HUL is expected to see 6% vol growth, as price correction drives uptick in volumes. Gross margin to improve on yoy basis owing to correction in PFAD price and calibrated price hikes. EBITDA margin to see moderate expansion despite benign RM costs owing to higher royalty payments,” the brokerage said. 

Also Read: TCS share price in focus as the IT stock turns ex-dividend today

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 19 Oct 2023, 09:10 AM IST