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Informist, Tuesday, Jul 16, 2024

 

MUMBAI – Price cuts are likely to boost demand for Hindustan Unilever Ltd and help the company report modest growth in volumes during the June quarter, leading to a slight increase in sales. Further, its net profit is expected to rise amid a dip in raw material prices, helping the company recover from the dismal performance during the previous quarter, when net profit had fallen. 

 

HUL's net profit in Apr-Jun is expected to rise 3% on year and 6% on quarter to 25.48 bln rupees, according to an average of estimates by 13 brokerage houses. The highest estimate was 27.19 bln rupees, while the lowest was 24.56 bln rupees.

 

Its revenue during the quarter is expected to rise 0.8% on year and 2.8% on quarter to 152.74 bln rupees, according to the average of estimates. The estimates were in the range of 149.25-157.59 bln rupees.

 

Despite expectations of muted earnings growth, shares of HUL have witnessed gains recently on expectations of some support from the government for the consumption sector in the Union Budget. Shares of the company have risen nearly 9% so far this month and closed 2.6% higher today at 2,688.45 rupees on the National Stock Exchange. HUL will report its quarterly earnings on Jul 23, the same day as the Budget. 

 

The company's revenue growth is seen muted as analysts do not foresee much change in demand trends from the previous quarter. Moreover, the extreme summer season is expected to have hit demand for hot beverages such as tea and coffee products, but this is likely to aid sales in the company's much smaller segment of ice-creams. HUL sells tea and coffee products under the brands 'Brooke Bond' and 'Bru', respectively.

 

Recovery in demand is still gradual for the company, said Nuvama Institutional Equities in its earnings preview report. The brokerage expects the company to have cut product prices by 2% in Apr-Jun, higher than 1.5% of price cuts taken in Jan-Mar. "Pricing cuts are likely to be higher than the previous quarter due to steeper cuts in soaps while Horlicks price increase is now anniversarised," it said.

 

These price cuts could lead to lower realisation this quarter, but have helped the company maintain volume growth, analysts said. Motilal Oswal Financial Services, and Prabhudas Lilladher expect the company to report an annual volume growth of 3% this quarter, while brokerages Emkay Global, Nirmal Bang, and Kotak Institutional Equities expect volume growth at 2%. The company had reported an underlying volume growth of 2% in Jan-Mar.

 

Analysts expect better gross margin this quarter on the back of lower raw material prices. Brokerages see gross margin expanding 150-220 basis points on year. At the same time, rise in earnings before interest, tax, depreciation, amortisation is seen muted with the metric seen slightly higher at 35.85 bln rupees, according to the average of estimates by 11 brokerages.

 

HUL's operating profit is expected to take a hit due to an increase in royalty rates to parent Unilever and termination of distribution agreement with GSK Consumer Healthcare. HUL had raised the royalty rate in January last year to 3.45% of revenue from 2.65% in 2021-22 (Apr-Mar).

 

Following are the Apr-Jun earnings estimates for Hindustan Unilever, in mln rupees, based on reports compiled by Informist from 13 brokerages:

 

Brokerage Name	Net Sales	Net Profit	EBITDA
Anand Rathi Share and Stock Brokers Ltd	1,53,043	26,595	-
Axis Securities Ltd	1,49,250	24,790	35,390
Emkay Global Financial Services Ltd	1,52,566	25,621	36,073
HDFC Securities Ltd	1,52,251	24,939	35,557
Incred Research Services Pvt Ltd	1,50,577	24,556	34,934
Kotak Institutional Equities	1,51,460	25,342	35,347
KR Choksey Research	1,57,585	27,191	38,013
Motilal Oswal Financial Services Ltd	1,55,530	26,432	37,113
Nirmal Bang Equities Pvt Ltd	1,52,398	25,090	35,204
Nuvama Wealth Management Ltd	1,50,803	24,735	34,839
Prabhudas Lilladher Pvt Ltd	1,54,510	25,619	36,155
Sharekhan Ltd	1,52,980	25,120	-
YES Securities (India) Ltd	1,52,720	25,196	35,736

 

End

 

Reported by Anshul Choudhary

Edited by Vidhi Verma

 

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