Hindustan Unilever Ltd (HUL), the FMCG major, is expected to see muted revenue growth during the third quarter of FY24 as weak festive demand and price cuts are likely to weigh on the company’s volume and revenue growth.
Hindustan Unilever is set to release its Q3 results on Friday, January 19. The company is likely to report a marginal rise of 2.2% in its net profit for Q3FY24 at ₹2,638 crore as compared to ₹2,581 crore in the corresponding quarter of the last fiscal, according to average estimates of 5 brokerage houses.
Read also: Q3 results preview: FMCG sector expected to see mid-single digit volume growth, marginal expansion trend to continue
HUL’s revenue for the quarter ended December 2023 is estimated to remain flat year-on-year (YoY) at ₹15,400 crores. The company is expected to deliver muted volume growth of around 1%-2%.
“We model flat YoY revenue growth considering demand trends largely following 2Q; no material pick-up in festive demand, resulting in 2% YoY growth in UVG. HUL’s price cuts are expected to impact top-line growth,” said Kotak Institutional Equities.
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The home care category growth is expected to moderate to 0.5% YoY due to price reductions in the laundry portfolio. The growth of the beauty and personal care (BPC) segment is also likely to moderate to 0.8% YoY due to prices in soaps.
At the operating level, HUL’s earnings before interest, tax depreciation and amortization (EBITDA) is expected to rise 1.3% to ₹3,581 crore from ₹3,537 crore, YoY. EBITDA margin is likely to expand by 77 basis points (bps) to 24.0% from 23.2% YoY on the back of lower palm oil costs and other input costs.
“The expansion of EBITDA margins will be moderate due to higher advertising expenses, offsetting the expansion of gross margins of 523 bps YoY. PAT growth will be in line with EBITDA growth,” Axis Securities said.
Analysts believe that HUL Q3 results may have the impact of the end of marketing agreement with GSK from November 1, 2023.
Read also: RIL Q3 Results Preview: Digital, retail to drive profit, revenue; O2C business may remain under pressure
During the December quarter, the prices of essential raw materials for FMCG companies declined. Palm oil prices corrected by 7.9% YoY and 4.1% QoQ with prices expected to increase after Q3FY24 as El Nino could reduce production. Palm Fatty Acid (PFAD) prices are flat YoY but down 6.6% QoQ, brokerage firm Prabhudas Lilladher said.
The drop in input cost prices has led to a resurgence of local regional firms, offering quality products and gaining market share. While incremental prices are small, companies increase advertising and offer additional incentives to channels to remain competitive with regional brands.
Going forward, HUL’s outlook on competition from local and regional players and rural versus urban demand will be key to monitor.
At 2:30 pm, HUL shares were trading 0.53% lower at ₹2,550.15 per on the BSE.
Read all the Q3 results here
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Published: 18 Jan 2024, 14:31 IST