HUL’s Q3 revenue seen growing 9-11% as margins expand2 min read . Updated: 17 Jan 2019, 11:42 AM IST
HUL earningsusually the bellwether for India's FMCG markethelps gauge consumer demand and monitor sentiment, especially in an election year
New Delhi: India’s largest listed FMCG firm, Hindustan Unilever Ltd, is set to announce its December quarter (Q3) results today. The company that sells products across personal care, home care, and food and beverages segments has been delivering strong volume-led growth over the last few quarters, buoyed by an uptick in domestic demand and supported by the company’s efforts to curb costs.
HUL’s earnings—usually the bellwether for India’s fast moving consumer goods (FMCG) market—helps gauge consumer demand and monitor sentiment, especially in an election year.
Analysts who track the company expect the company to continue its growth momentum in Q3.
Volumes at the maker of Sunsilk shampoo and Surf detergent are expected to grow between 6% and 8% largely on the back of a higher base in the previous quarters. HUlL is expected to deliver strong revenue growth of 9%-11%, according to estimates by various brokerages.
“We expect 11.6% year-on-year sales growth mainly led by volume growth of 8% on account of volume growth across categories…" ICICI Securities said in a January report. This, along with improved rural demand, in addition to price hikes taken in detergents and skin care categories during the September quarter are likely to help sales grow, the report added.
In another report, Edelweiss Securities Ltd maintained that the company’s revenues likely grew by 9% during Q3 with net profit up 4%.
The company’s domestic volume growth has been steadily growing over the last few quarters suggesting a robust consumer demand. For instance, in the third quarter of the previous year, HUL posted volume growth of 11%, while in the September quarter, volume growth stood at 10%.
Volume growth is an important indicator in a way that it looks at growth in sales minus the price hikes undertaken by the company.
However, analysts remained cautious about HUL’s volume growth for the December quarter largely on the back of a high base in the previous quarters.
“The expectation is that over four consecutive quarters, HUL has been delivering volume growth of 10% to 11%, therefore the base gets challenging, we are expecting a 6% volume growth for the quarter," said an analyst at a large financial services firm on the condition of anonymity.
Analysts also expect margins at HUL to expand during the quarter driven by to the company’s cost-saving efforts, even as prices of commodities such crude oil remained volatile.
ICICI Securities expects the company to report operating margin expansion of 208 basis points to 21.6% despite higher raw material costs. The margins, according to ICICI, will expand despite “higher raw material costs, while benefiting from a focus on premiumisation, cost cutting and market share gains".
One hundred basis points equal one percentage point.
Another factor that makes HUL Q3 results especially key for the FMCG sector is its performance in the country’s rural markets. HUL draws close to 40% of its sales from India’s hinterland.
Over the last few quarters, the company has been reporting a sustained growth in sales momentum coming in from the rural markets. For the September quarter, rural growth outpaced urban by 1.25 times.
Analysts, however, see little to no change on that front.
“Rural demand likely to grow at 1.2x of urban, but no acceleration from the previous quarter," Edelweiss said in its report.