Synopsis: The upcoming quarterly results for Hindustan Unilever Ltd (HUL) are expected to reflect a challenging environment marked by stagnant sales growth and potential margin pressures. Analysts anticipate a decline in net profit, influenced by subdued domestic consumer demand, although rural demand shows a slight improvement.
Analysts observed that domestic consumer demand stayed subdued during Q4, consistent with the previous two quarters. Despite this, there was a slight uptick in rural demand from a lower starting point.
Hindustan Unilever Ltd (HUL) is anticipated to announce a potential decline of up to 5 percent in net profit for the March quarter, driven by stagnant sales growth. Volume growth is projected to be around 2-2.5 percent, while margins are expected to contract by at least 50 basis points both year-on-year (YoY) and quarter-on-quarter (QoQ).
Analysts have observed that domestic consumer demand remained subdued in Q4, aligning with the trend of the previous two quarters. However, there was a slight uptick in rural demand, albeit from a relatively low base. Emkay Global noted that the demand scenario in Q4FY24 mirrored that of Q2 and Q3. HUL is likely to experience flat sales and a volume growth of 2.5 percent, offset by a negative price growth of 2.5 percent, according to Emkay.
"With the cessation of GSK-related commission income and a rise in royalty (25 basis points from January 2024; with a higher impact in Q4 due to a 45 basis points hike in royalty effective February 2023 as a base), margins are expected to be impacted by 80-90 basis points. While the company intends to partially mitigate this impact using gross margin, an overall 70 basis points YoY and QoQ contraction in Ebitda margin to 22.6 percent is anticipated. We anticipate a 24 percent absolute increase in A&P spends," Emkay stated.
Emkay predicts HUL's Q4 profit to be Rs 2,471 crore, down 2 percent.
PhillipCapital anticipates a 5.2 percent YoY decline in HUL's net profit to Rs 2,343 crore for the March quarter compared to Rs 2,471 crore in the corresponding quarter last year. Revenue for the quarter is estimated at Rs 14,423 crore, down 1.5 percent YoY from Rs 14,638 crore in the year-ago quarter. Ebitda margin is expected to be 23.1 percent, down 61 basis points YoY and QoQ.
"HUL is expected to witness low single-digit volume growth due to rural slowdown and heightened competitive pressure. Gross margin improvement is anticipated on a YoY basis due to corrections in PFAD price and controlled price adjustments; however, Ebitda margin might decline due to increased royalty payouts and the loss of distribution income resulting from the termination of the agreement with GSK Consumer," PhillipCapital stated.
Sharekhan forecasts a YoY increase of 0.7 percent in HUL's profit to Rs 2,489 crore. It predicts sales to reach Rs 15,309 crore, up 2.8 percent, driven by 2-4 percent YoY growth in personal care and foods & refreshments categories, while homecare is expected to decline by 1 percent.
"Gross margins are anticipated to improve by 280 basis points YoY, supported by the softening of raw material prices. However, OPM is expected to decline by 50 basis points YoY due to increased advertising and other expenses," Sharekhan mentioned.
In conclusion, Hindustan Unilever Ltd (HUL) is expected to face a challenging quarter, with a potential decline in net profit attributed to stagnant sales growth and margin pressures.
Analysts foresee subdued domestic consumer demand persisting, albeit with a slight rural demand uptick.
Factors such as the cessation of commission income related to GSK and a rise in royalty are anticipated to impact margins significantly.
While strategies to mitigate these impacts are in place, including increased advertising and adjustments in pricing, the overall outlook remains cautious.
Investors are advised to exercise prudence and seek guidance from financial experts before making any investment decisions.
