Hindustan Unilever (HUL) is slated to release its March 2019 quarter (January-March 2019 period) results on Friday. While the sales growth is likely to remain strong on year-on-year (YoY) basis, analysts expect operating profit margins (OPM) to be under pressure, owing to increase in input cost prices such as cocoa.
Estimates for volume growth have been lowered to high single-digits from double-digits earlier due to higher base. Despite this, the overall sales will get a boost from price hikes undertaken by the company in select products during the recently concluded quarter.
Analysts at ICICI Securities, for instance, expect HUL to post 9.9 per cent YoY growth in sales on the back of 7 per cent volume growth across categories. They believe shift towards naturals' products and increasing premiumisation trend should help maintain the growth trajectory for the company. Net profit is seen at Rs 1,452.4 crore, up 7.5 per cent. The company should witness operating margin contraction of 150 bps to 21 per cent due to higher marketing spend towards promotions in Kumbh, the brokerage says.
However, Sharekhan says the 20 per cent drop in palm oil prices during the quarter would help OPM improve by 163 bais points (bps) to 24.1 per cent. Operating profit, it says, will grow 19.2 per cent. Sharekhan pegs HUL's net profit at Rs 1,651 crore, up 17.7 per cent YOY.
Centrum Wealth, on the other hand, estimates 9 per cent YoY revenue growth, supported by 7.5 per cent volume and 1.5 per cent price mix. "We reckon raw material prices are benign, but believe competitive intensity would warrant higher advertising and promotion (A&P) spends. We expect earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 22.9 per cent versus 22.5 per cent in the corresponding period of the previous year. The company has raised prices by 1-2 per cent for a few products. We expect disruptive competition from regional players to cap volume growth," it said.
In the last one year, shares of HUL have outperformed both Nifty50 as well as Nifty FMCG indices. The stock has gained over 19 per cent during May 2018-April 2019 period, while the benchmark Nifty50 index has risen nearly 10 per cent. The Nifty FMCG index has risen 5 per cent.
Edelweiss Securities, which sees volume growth of around 6 per cent YoY, says other factors that are likely to weigh on volume growth during the quarter under review include limited volume offtake of summer products due to deferral of summer and elongated winters, moderation in rural growth and limited beneficiaries of Kisan Samman Nidhi scheme. The brokerage expects revenue, EBITDA and PAT to grow nearly 7 per cent, 13 per cent and 18 per cent, respectively, YoY.