Mumbai: Hindustan Unilever Ltd (HUL), India’s largest listed consumer packaged goods firm by sales, will announce its results for the March 2018 quarter on Monday.

Compared to the preceding quarter, earnings in the fourth quarter are expected to be subdued with volume growth in the 5-7% range. In the preceding quarter volumes grew at a robust 11% given the low base in the year-ago quarter which was impacted due to demonetisation and saw consumption contracting.

Volume growth numbers are a good indicator of gauging consumer demand. As such it would be interesting to hear the maker of Knorr soups and Dove soaps commentary on consumer sentiments and rural demand given the divergent views of recovery on one hand and rural distress on the other caused due to fall in agricultural commodity prices like sugar, wheat flour, and milk.

During the quarter, the sector has witnessed some pressure on prices of raw materials like copra, titanium dioxide, monomers, vinyl acetate monomer (VAM) and menthol which have remained firm. It would be interesting to see what percentage of top line growth is coming on account of price increases.

Usually, industry leaders take the lead in raising prices. Hence, any commentary on whether we are likely to see a return of price-led growth going forward will be welcome.

Additionally, it will be interesting to see the company’s operating margins. An increase in prices would offset gross margin pressure. Brokerages tracking the Indian arm of Unilever Plc expect it to report widening operating margin growth. Some of this is on account of cost efficiencies kicking in.

“We expect HUL to report a steady 170 basis point margin expansion to deliver approximately 14% operating margin growth," said brokerage Jefferies Equity Research India in a 5 April preview report.

Among things to watch out for are its progress on products such as Lever Ayush and sectors like ayurveda; the progress in channels like the wholesale trade and army canteens; Is India slowly moving from being a primarily cash led economy to digital? Are the corner shops embracing the digital economy? Are we seeing the movement from informal to formal continue at an accelerated pace?

All of this matters even more because sector valuations are already expensive. The fast moving consumer goods sector and Hindustan Unilever already command a price-to-earnings multiple of 53.06 and 63.18 times trailing 12-month earnings each, respectively, compared to the broad market’s 24.32 times.

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