New Delhi: India’s largest FMCG firm, Hindustan Unilever Ltd, is set to announce its March quarter (Q4) results today. The company, that sells products across personal care, home care, and food and beverages segments, has been reporting strong volume growth over the last few quarters.

HUL’s earnings—usually the bellwether for India’s fast moving consumer goods (FMCG) market—helps gauge consumer demand and monitor sentiment.

However, over the last few months companies and analysts have been warning of a consumer slowdown especially in rural markets. Additionally, a higher base in the previous quarters and a delayed onset of summers are likely to soften top line growth in the fourth quarter for some companies. For instance, biscuit maker Britannia Industries posted a 7% volume growth during the quarter in its earnings announced earlier in the weeks while Dabur India reported its slowest domestic volume growth in seven quarters in Q4.

HUL, which has been registering strong double-digit volume growth over the last few quarters, could register softer volume growth in the fourth quarter of FY19, said analysts who track the sector.

Volumes at the maker of Sunsilk shampoo and Surf detergent are expected to grow between 6% to 8%, according to estimates from various brokerages. Revenues at the Mumbai-based company are expected to grow between 6% to 12%, while analysts expect profit growth to come between 13% to 18%.

Jefferies expects volume growth to moderate for HUL at 5%. In the March quarter of FY18, the Mumbai-headquartered company had posted volume growth of 11%, albeit on a lower base.

“This will be a soft quarter for the company on the base of higher volume growth in the previous quarter and slow offtake in rural," said Naveen Trivedi, AVP, institutional equities at HDFC Securities, which expects a 7.5% volume growth.

Another brokerage Edelweiss too expects moderation in volume growth at 6% year-on-year on account of a high base in the year-ago period. Edelweiss expects revenue, EBITDA and PAT to grow at 7%, 13% and 18%, respectively.

Volume growth is an important indicator in a way as it looks at growth in sales minus the price hikes undertaken by the company.

Additionally, analysts are also watching out for numbers across different segments. HUL operates in the personal care, home care and foods and refreshments category. “For personal care as a category HUL’s growth have been slow, driven by higher competition and promotional expenses on behalf of HUL," HDFC Securities’ Tripathi said.

In Q3FY19, HUL reported lower margins of 21.9% on a quarter-on-quarter basis. The company has been managing costs with slight price hikes.

Over the last few months, the company took a price hike in talc, deos, skin and skin wash products, whereas it cut prices in detergent bars. The company increased price of Axe Dark Temptation deodorant by 5% and Fair & Lovely Advanced Multi-Vitamin Cream by 3% during the last few months.

This price hike could help expand margins in some categories.

“Selective price hikes and cost-saving efficiencies should drive margin expansion," brokerage Emkay Global said in an April 9 report.

The company’s EBITDA margin could expand by 175 bps year-on-year helped by operating cost efficiencies (including advertising and promotional spends) while gross margin may expand 70 bps year-on-year, Kotak Securities said in an April report.

HUL’s earnings come at a time when market research firm Nielsen lowered its growth projection for India’s fast moving consumer goods market to 11-12% in 2019, a downward revision from its earlier projection of 13% to 14%. “While a slight drop is witnessed in urban growth, there is a significant softening of growth trends in rural, which is dampening the overall FMCG industry growth from Q318 to Q119," Nielsen said in a report last month.

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