Hindustan Unilever Ltd (HUL), India’s largest listed consumer packaged goods firm by sales, will announce its results for the June 2018 quarter today. A Bloomberg poll of 15 analysts has estimated HUL’s Q1 profit at 1,540 crore and revenues at 9,669 crore. This is the second quarter in a row that the India unit of Unilever Plc has witnessed high raw material inflation. Crude at $78 for a barrel remains firm. Consequently, most crude-linked inputs such as titanium dioxide, monomers, vinyl acetate monomer (VAM) are showing strength, brokerage Prabhudas Lilladher Pvt. Ltd said in a July report.

More worrying is the increasing retail inflation and its impact on consumer demand. Retail inflation rose to a five-month high in June at 5%, against 4.87% in the preceding month. Besides the surge in crude oil prices, weakening rupee and increase in minimum support price (MSP) of summer-sown crops by the government are further expected to put upward pressure on retail inflation.

While the hike in MSP for the 2018-2019 season is good for the farmer, it will further push up retail inflation by 70 basis points, according to India Ratings and Research Estimates. Moreover, it will impact the marginal farmers and even the urban poor’s discretionary spends.

In the March quarter rural demand had remained buoyant. In fact it was growing faster than urban demand after a gap of four years. HUL reported 11% volume growth in the March and December quarters. It will be interesting to see whether it can maintain this double-digit volume growth in the June quarter with inflation creeping in.

However, thanks to its broad portfolio that straddles across segments, the maker of Knorr soups and Dove soaps has reduced prices in the popular segments and increased prices at the top-end. In the June quarter Dove portfolio prices were up by 4% on an average compared to a year-ago. Meanwhile prices in detergent powder across brands like Rin, Active Wheel, Surf Excel Easy Wash, Surf Excel Matic and Surf Excel Quick Wash have been cut by 5% over a year-ago, brokerage Elara Securities (India) Pvt Ltd said in a July report.

The quarter also saw the company maintain its visibility with high intensity advertising and promotion activities. In spite of all this, brokerages expect HUL to report widening margins. “We estimate a modest 210 basis point (bps) expansion in operating profit margin over a year-ago, driven equally by mix-led gross margin expansion and operating leverage," brokerage Kotak Securities said in a 5 July report. One basis point is a hundredth of a percentage point.

To be sure, the sector and even HUL’s valuations have already come down since the March quarter. All the same they remain expensive. The fast moving consumer goods sector and Hindustan Unilever already command a price-to-earnings multiple of 34.16 and 57.57 times trailing 12-month earnings respectively, compared to the broader market’s 17.99 times. The company’s results today will be a good indication of whether these valuations will further hold or deteriorate.

HUL shares were trading 1.3% higher in early trade today at 1,763 as compared to a 0.23% decline in Sensex at 36,458.