HUL Q4 preview: Volume, PAT likely to drop on demand slowdown, say analysts

HUL Q4 preview: Analysts lack consensus on the net profit change from last year. However, all estimates showed that it will likely fall between 3-9 per cent on a sequential basis

HUL Q4 preview: Fast moving consumer goods major Hindustan Unilever (HUL) is expected to report a weak performance in the January-March (Q4) quarter marred by high raw material inflation due to the Russia-Ukraine conflict. 

Analysts expect the company to report decline in volumes in the recent quarter due to slowdown in demand across rural and urban regions, and consumers downtrading to low price units.  

The company is likely to post yearly revenue growth of 5-8 per cent mainly led by price hikes taken this year to combat inflationary pressures. 

Meanwhile, analysts lack consensus on the net profit change from last year. However, all estimates showed that it will likely fall between 3-9 per cent on a sequential basis, while revenue may come flat to negative.

That apart, analysts have also predicted a noticeable contraction in the company's gross as well as operating margins due to steep increase in crude based raw materials and palm oil prices. 

The stock has fallen 9 per cent so far this year. In comparison, the BSE FMCG index has added 1.4 per cent during the same period. 

Key monitorables: Commentary on demand situation and likely improvement in rural business,  recovery in personal care, pricing actions and new launches strategy and sustainability of cost-saving initiatives. 

Here is a compilation of brokerage expectations on HUL Q4 results:

HDFC Securities: The brokerage expects HUL to post year-on-year (YoY) revenue growth of 6 per cent with a 3 per cent fall in volumes. It has estimated 10 per cent, 4 per cent and 4 per cent YoY growth for home care, beauty and personal care, and food business.

It sees gross margins declining by 206 bps YoY and 117 bps sequentially. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin is expected to contract by 12 bps YoY to 24.3 per cent. 

ICICI Securities: Analysts here expect volume de-growth for HUL due to grammage reduction in soaps, detergent & high base of health supplements categories. They expect 8.7 per cent revenue growth with  a 5 per cent volume decline.  
 

High raw material costs are expected to result in a contraction of 227 bps in gross margins and 65 bps contraction in operating margins. Net profit is expected to have de-grown by 4.7 per cent YoY. 

Kotak Institutional Equities: The brokerage estimates 8 per cent YoY revenue growth with 2 per cent decline in volumes. It expects deterioration in rural demand, continued market share gains for HUL, recovery in discretionary and out of the home categories, and continued inflationary pressures. 

It sees 160 bps YoY and 115 bps QoQ contraction in gross margin due to broad-based inflationary pressures. While EBITDA margin is likely to come at 24.1 per cent, down 90 bps qoq and 25 bps yoy, partly offset by lower media spends. 

ShareKhan: The brokerage says that sales volume is likely to be impacted by downtrading to low price units and cut in discretionary spends while calibrated price hikes across the portfolio will mitigate the impact of volume decline leading to 5 per cent yoy revenue growth. 

Due to high raw-material and packing material pressure coupled with inferior product mix, gross margins are expected to be lower by 170 bps yoy. PAT is expected to remain flat from last year, it said.