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Informist, Tuesday, Jan. 21, 2025

 

By Anjana Therese Antony

 

MUMBAI - Slower volume growth and urban demand along with high raw material costs are likely to weigh on earnings growth of Hindustan Unilever Ltd. for the quarter ended December, analysts said. Some analysts also expect higher royalty rates and the termination of the GlaxoSmithKline consumer distribution contract to hurt the fast moving consumer goods company's margins. Though the near-term outlook for the Mumbai-based company remains bleak due to inflationary pressure and slump in demand, some broking firms are optimistic for the long term, supported by a ramp-up in executions. 

 

The company's standalone net profit is seen rising only 1.9% on year to INR 25.66 billion, according to the average of estimates from 17 broking firms. The highest estimate of INR 27.06 billion for the bottom line was from Motilal Oswal Financial Services, while the lowest estimate of INR 24.64 billion was from HDFC Securities. 

 

Standalone revenue may grow 2.8% on year to INR 156.09 billion, as per the average of estimates. If so, this would be the fastest top line growth of the company in five quarters. Motilal Oswal has the highest estimate for top line at INR 160.54 billion and Axis Securities has the lowest--of INR 153.79 billion. 

 

Sequentially, this would mean a 1.8?cline in the bottom line and 0.7% rise in the top line. The fast moving consumer goods giant is scheduled to release its quarterly results Wednesday.

 

Increasing competition from direct-to-consumer players and persistent slowdown in general trade are expected to impact Hindustan Unilever's sales, Centrum Broking said in its earnings preview report. A few other broking firms also said that the discontinuation of GSK consumer distribution business is likely to hit the company's other operating income. Hindustan Unilever had acquired GSK Consumer Healthcare in April 2020, following which they signed a pact to sell over-the-counter and oral care products. However, they terminated the contract in November 2023.

 

Higher raw material costs are expected to hit the Oct-Dec operating profit of the detergent and soap major. Sharp inflation in palm oil--impacting soaps, detergents, cosmetics business--and tea are leading to margin decline, Systematix Group said in its pre-earnings report. Operating profit--calculated as earnings before interest, tax, depreciation, and amortisation--is anticipated to rise to INR 36.09 billion from INR 35.40 billion a year ago, as per the average of estimates from 15 broking houses.

 

Kotak Institutional Equities expects a 25-basis-point decline in EBITDA margin from the year-ago period after factoring in a 25-bps effective increase in royalty, and adverse operating leverage. Hindustan Unilever raised its royalty rate in January 2023 to 3.45% of revenue from 2.65% in 2021-22 (Apr-Mar). 

In November, the company's board gave an in-principle approval to demerge its ice-cream business into an independent listed entity. The company then incorporated a wholly-owned subsidiary--Kwality Wall's (India) Ltd.--in January for the purpose of the proposed demerger. 

 

The company's post-earnings virtual press conference with the management is scheduled at 1635 IST and the conference call with analysts at 1800 IST. Investors will closely monitor the company's comments on urban demand outlook, raw material cost trends, business outlook for the next few quarters, expectations from its about-to-be demerged ice-cream business, and volume growth.

 

VALUATION

The company's stock has gone through time correction in the last five years amid competition, steady disruptions, and its inability to align with the evolving consumption trend, Emkay Global Financial Services said in its earnings preview report. "However, now with a well-aligned leadership, capabilities in place, and in sync with the consumption trend, the performance (of the stock) should improve, thus aiding valuations," it added. 

 

The broking firm has maintained its 'buy' rating on the stock, but reduced the target price to INR 2,675 from INR 2,950 earlier. This target price is 14% higher than the closing price of INR 2,340.50 on the National Stock Exchange Tuesday. This current market price is 12% lower than what it was before the September quarter results were released on Oct. 23. This is also 23% lower than the record high of INR 3,035 it had hit on Sept. 23. The stock has risen a little over 3% so far in the current financial year.

 

 

Following are the Oct-Dec earnings estimates for Hindustan Unilever based on reports from 17 brokerage firms in the descending order by the estimate of net profit:

Broking firms	Net Profit (in INR million)	Net Sales (in INR million)	EBITDA (in INR million)
Motilal Oswal Financial Services Ltd	27,059	1,60,544	38,374
Nirmal Bang Equities Pvt Ltd	26,058	1,58,129	36,528
YES Securities (India) Ltd	25,981	1,57,164	36,383
Axis Securities Ltd	25,970	1,53,790	36,180
Sharekhan Ltd	25,880	1,56,820	--
Centrum Broking Ltd	25,847	1,57,183	36,152
Kotak Institutional Equities	25,792	1,55,792	35,924
Elara Securities (India) Pvt Ltd	25,775	1,54,100	35,968
Emkay Global Financial Services Ltd	25,754	1,56,139	36,139
Nuvama Wealth Management Ltd	25,631	1,55,251	36,098
Prabhudas Lilladher Pvt Ltd	25,629	1,57,196	36,469
KR Choksey Research	25,591	1,56,344	36,228
JM Financial Institutional Securities Pvt Ltd	25,530	1,54,550	36,281
Nomura Equity Research	25,263	1,54,096	35,191
Systematix Shares and Stocks (India) Ltd	25,079	1,55,838	35,033
Anand Rathi Share and Stock Brokers Ltd	24,700	1,55,251	--
HDFC Securities Ltd	24,642	1,55,296	34,424
Average	25,657.71	1,56,087.24	36,091.47

 

End

 

Edited by Vandana Hingorani

 

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