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Informist, Monday, Oct. 20, 2025

 

By Avishek Rakshit

 

KOLKATA – The government's move to cut goods and services tax to boost consumption may have brought cheer to consumers, but has dampened the financial performance for most of the fast-moving consumer goods companies in the September quarter. These companies faced increased destocking from their trade channels, which has affected both sales volume and revenue.

 

While some companies, which keep low inventory, may not feel the pressure of such destocking, others, such as Hindustan Unilever Ltd., which carry substantial inventory, felt the stress in the reporting quarter. This stress is likely to continue during the peak festive month of October as well. In its first-ever update on quarterly sales performance before declaring the financial results, HUL said that it expects its consolidated business growth to be between flat and low single digit for the September quarter.

 

As a result, HUL is expected to report a 5.8% on-year decline in its net profit for the September quarter to INR 24.8 billion, according to the average of estimates from 13 brokerages. The company's revenue is expected to increase 2.2% on year to over INR 158.4 billion, according to the average of estimates. On a sequential basis, the net profit is likely to decline by 13.4% and the revenue by 0.6%. The Indian arm of the UK-headquartered company will declare its results for the September quarter on Oct. 23.

 

Elara Securities (India) Pvt. Ltd. has the highest estimate for net profit at INR 27.2 billion, while Systematix Shares and Stocks (India) Ltd. has the lowest at INR 23.2 billion. The highest estimate for revenue is by Motilal Oswal Financial Services Ltd. at INR 162.6 billion and the lowest is by Elara Securities at INR 155.2 billion.

 

While the country's largest fast-moving consumer goods company said the effects of the GST cut would be a one-off transitory impact, HUL expects sales volume recovery to start no sooner than November as prices stabilise, underpinned by rising disposable incomes and the company's ongoing portfolio transformation.

 

By the time HUL expects to see stability in sales, the peak festive season, which creates pent-up demand and often boosts the income of consumer goods companies during the festive months, will be over. As a result, HUL faces a double whammy of the GST cut affecting its earnings in both the September quarter as well as the December quarter.

 

However, some brokerages are optimistic that HUL stands to gain from the GST cut in the medium term as 40% of its portfolio, including soaps, toothpaste, shampoos, hair oil, talcum powder, lifestyle nutrition and other food products, now benefit from a reduced GST rate of 5%. But the challenge here again is the uncertainty of urban demand bouncing back to pre-COVID levels and inflation in key commodity prices, which may keep volumes muted and put pressure on margins.

 

Based on HUL's update on the effects of the GST cut, Emkay Global Financial Services Ltd. revised its initial projections of mid-single digit revenue growth to a flat one. Kotak Securities Ltd. is of the view that the underlying sales growth – a key metric to measure a company's organic performance excluding external factors such as currency fluctuations – will be only 0.5% in the reporting quarter.

 

HUL is expected to report earnings before interest, tax, depreciation, and amortisation of INR 35.3 billion, according to the average of estimates from 11 brokerages. Brokerage Motilal Oswal has the highest estimate for EBITDA at INR 36.5 billion and Emkay has the lowest at INR 34.5 billion.

 

Nirmal Bang Equities Pvt. Ltd. expects HUL's gross margins to contract by 60 basis points on year but increase by 120 basis points on quarter. The on-year decline in gross margins, along with higher expenses, is likely to lead the EBITDA margin to fall 120 basis points on year to 22.3%.

 

Kotak Securities highlighted that the effect of the GST cut on HUL's sales channels was by way of higher promotions to help channel partners liquidate their inventory. As a result, advertising and promotions spend is likely to increase by 10 basis points on year to around 10% of sales, even as revenue growth projections are tepid, the brokerage said. Brokerages, however, have not given specific estimates of how much of this destocking is likely in the September quarter and how much will likely spill over to the December quarter. There are also no estimates as to how much of the financial impact of this destocking is likely to affect the September and December quarters.

 

Monday, shares of HUL ended at INR 2,594.4 on the National Stock Exchange, down 0.4% from the previous close. The shares are up nearly 3% since the company announced its June quarter earnings in July.

 

Of the 23 research reports on the company available with Informist, 18 have a 'buy' rating on the stock at an average target price of INR 2,780. Three brokerages have a 'hold' rating on the stock at an average target price of INR 2,507 and two have a 'sell' rating on the scrip at an average target price of INR 2,452.

 

The following are the Jul-Sept earnings estimates for Hindustan Unilever from 13 brokerages in descending order of the estimate of net profit in INR million:

 

Broker Name	Net Sales (in INR million)	Net Profit (in INR million)	EBITDA (in INR million)
Elara Securities (India) Pvt Ltd	155,190	27,210	34,990
Motilal Oswal Financial Services Ltd	162,625	25,552	36,484
Sharekhan Ltd	159,770	25,410
Anand Rathi Share and Stock Brokers Ltd	155,488	25,188
Nomura Equity Research	155,878	24,980	34,917
Nuvama Wealth Management Ltd	160,863	24,934	36,033
Nirmal Bang Equities Pvt Ltd	156,801	24,664	34,967
Prabhudas Lilladher Pvt Ltd	157,871	24,422	34,732
JM Financial Institutional Securities Pvt Ltd	161,189	24,406	36,185
Kotak Securities Ltd	155,844	24,128	34,505
Emkay Global Financial Services Ltd	155,503	23,963	34,452
YES Securities (India) Ltd	161,618	23,861	35,500
Systematix Shares and Stocks (India) Ltd	160,917	23,232	35,205
Average	158,427	24,765	35,270

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Edited by Saji George Titus

 

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