Hindustan Unilever Ltd (HUL) Set to Reveal Q2FY24 Financials Amidst Challenging Market Conditions

Analysts Anticipate Moderation in Revenue and Profit After Tax

Hindustan Unilever Ltd (HUL) is gearing up to unveil its financial results for the second quarter of FY24, with the announcement scheduled for Thursday, October 19, 2023. The board meeting of this major fast-moving consumer goods (FMCG) company, set to take place today, will focus on the approval of financial statements and the consideration of a proposal for an Interim Dividend, if applicable, for the July-September quarter of FY24.

In a challenging environment for FMCG companies, characterized by muted volume growth and other economic headwinds, the outlook for HUL’s Q2FY24 performance is closely monitored. Analysts predict that most FMCG companies are likely to report low-to-mid-single-digit volume growth. The sector as a whole is expected to experience constrained volume growth, primarily due to adverse factors such as an unprecedented rainfall deficit in August, measuring 36%, which has hindered the recovery of rural areas.

Brokerage firm Nuvama points out, “Volume growth shall be subdued with most companies likely to turn in low-to-mid-single-digit volume growth. August this year recorded the lowest rainfall in more than 100 years with a 36% deficit, thereby impeding rural recovery.”

HUL’s revenue is also expected to moderate, influenced by factors including price reductions, price hikes for universalization, and a delayed festive season.

Based on the consensus of estimates from four brokerages, revenue for the quarter ending in September is projected to fall within the range of 4% to 6%, while profit after taxes is expected to range between 2% and 8%.

In the first quarter of FY24, the FMCG company posted a standalone net profit of ₹2,472 crores, marking an 8% increase from ₹2,289 crores in the same period of the previous year. Total standalone sales amounted to ₹14,931 crores, representing a 7% growth during the quarter. On a consolidated basis, profit after tax increased by 7% to ₹2,556 crores in the first quarter.

Here’s what leading brokerages anticipate for HUL’s Q2FY24 performance:

Axis Securities The brokerage suggests that the growth in advertising expenditures is expected to offset a 470 basis points increase in gross margins year over year. It predicts a flattening of the earnings before interest, taxes, depreciation, and amortization (EBITDA) margin growth. Growth in profit after taxes (PAT) will align with the growth in EBITDA. The brokerage will closely watch metrics such as trends in raw materials, competitive intensity, and demand in rural versus urban areas.

Kotak Institutional Equities The analysis from this brokerage anticipates a 3.2% year-over-year increase in revenue and a 3% year-over-year growth in underlying volume growth (UVG). It attributes this expectation to the effect of price cuts by HUL, which would have an impact on topline growth, especially with flat pricing year over year. The late festive season is also expected to have a slight impact on volume growth.

Nuvama Institutional Equities Nuvama Institutional Equities highlights that while demand in urban areas continues to lead, demand in rural areas is on the rise. Rural areas saw negative compound annual growth rates (CAGR) in the month of July over two and three years. The unsatisfactory monsoon in August negatively impacted demand. Additionally, increased competition due to a growing number of small businesses in the tea and detergent bar industry is influencing the market. The late festivities this year are expected to shift Diwali demand into October, making it more pronounced in Q3FY24.

The brokerage’s expectations for HUL’s Q2FY24 performance include a revenue, EBITDA, and PAT increase of 4.5%, 7%, and 2.9% year over year, respectively. It anticipates that revenue growth will be mainly driven by volume growth, estimated to be at 4%. Pricing growth is expected to be 0.5% year over year, influenced by price reductions in soaps, shampoos, and laundry (HPC) and some pricing in tea, HFD, and coffee. Gross margins are expected to expand by approximately 303 basis points year over year to 48.8%, due to a moderation in raw material inflation. However, EBITDA margins are expected to expand by only about 56 basis points year over year to 23.8%.

Phillip Capital Phillip Capital expects HUL to achieve 6% volume growth, driven by price corrections leading to an uptick in volumes. Improved gross margins on a year-over-year basis are anticipated due to a correction in PFAD price and calibrated price hikes. The brokerage also suggests a moderate expansion in EBITDA margin, despite benign raw material costs, attributed to higher royalty payments.

HUL’s Q2FY24 financial results, to be disclosed in the coming days, are eagerly awaited by investors and industry observers alike, as the company navigates a challenging market landscape.