HUL is likely to report double digit growth in Q2 earnings; here are 4 factors to look at

October 11
16:56 2018

FMCG major Hindustan Unilever will announce its earnings for the second quarter on October 12. Overall the July-September period was strong for consumer goods companies including HUL, brokerage houses said.

The shift in demand from unorganised to organised players after the implementation of Goods and Services Tax (GST), price hikes during the quarter, cost-saving strategies and rural growth are likely to boost HUL earnings growth to double digits in Q2 (YoY), research firms said.

The sharp rise in crude oil prices is likely to have less impact on numbers, they said.

“Volume growth will be driven by a continued shift in demand from unorganised/small players to organised players in large categories like soaps and detergents,” Antique Stock Broking said.

Additionally, the rural recovery is also expected to sustain and aid demand during the quarter, it said. “Further, cost-saving initiatives are likely to aid margin expansion. Ad spends will continue to be at elevated levels.”

In September quarter, HUL share price fell 2 percent while it rallied 30 percent during January-August 2018 followed by 15 percent correction from September.

Here are four key factors to look at in Q2FY19 earnings:

Volume Growth

Overall volume growth is likely to be in the range of 7-9 percent, which is expected to boost the company’s revenue growth during the quarter, brokerage houses said.

Nirmal Bang expects volume growth in the range of 8-9 percent and value growth of around 4 percent during the quarter.

“Volume-led growth assumption is premised on broad-based demand for its products across categories, improved performance of naturals portfolio and new products like the launch of Brylcream range exclusively on Amazon,” it said.

Home and personal care segment will continue to drive growth, while the merger of food and refreshment businesses are likely to bring in synergy and efficiency, it added.

Edelweiss Securities expects HUL to record a volume growth of around 8-8.5 percent YoY on a base of 4 percent YoY growth. Q1FY19 saw volume growth of 12 percent on a flat base. So, 2-year average volume growth trajectory of earlier quarters is likely to be maintained, it added.

Revenue Growth

Revenue growth is expected to be in the range of 9-15 percent driven by volume, brokerage houses said.

The company is likely to witness 15 percent revenue growth mainly led by volume growth of 7-8 percent on account of supply chain benefits under GST regime in addition to price hikes of around 5 percent taken during the quarter, ICICI Securities said.

Axis Capital expects HUL to post 12 percent growth in core FMCG business while Edelweiss Securities’ projection is the lowest in terms of revenue growth. It expects around 9-10 percent YoY on rural pick up, price hikes and increasing consumer spending. The company is not seeing incremental competitive pressure from P&G in the detergent segment as yet, it said.

Operational Growth

Despite high advertising cost and raw material prices, around 100 bps expansion in margin is likely due to cost-saving strategies and premiumisation, brokerage houses said.

ICICI Securities said the company should be able to report 149 bps expansion in operating margins to 21.7 percent in spite of higher raw material and advertisement costs, benefiting from a focus on premiumisation, cost-cutting and market share gains.

EBITDA margin is likely to expand 120 bps YoY largely aided by gains from cost-saving initiatives/leverage; we expect modest 30 bps expansion in gross margin aided by price hikes, Axis Capital said.

On the costs side, Nirmal Bang said the pressure has accelerated with the crude oil prices rising, but other key raw materials like PFAD, palm oil, etc have declined YoY. Therefore, it does not expect adverse impact of crude in Q2.


Overall expectations for profit growth for the quarter could be 10-19 percent.

ICICI Securities expects net profit to grow 16.5 percent to Rs 1,494.6 crore while Axis Capital sees 18 percent growth in bottomline.

Antique Stock Broking said HUL could report 19.2 percent growth in net profit.

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