HUL’s overall revenues had increased by 16% year-on-year during the September quarter. Including the impact of the merger, analysts expect year-on-year HUL’s revenue growth for the December quarter to be in high teens.
Fast-moving consumer goods (FMCG) company, Hindustan Unilever Ltd (HUL) will announce its December quarter results today. One of the main focus areas would be the extent of recovery in sales. “For HUL, we expect 6% organic revenue growth in the domestic FMCG business led by 5% UVG (organic)," says Kotak Institutional Equities in its consumer preview report. UVG is underlying volume growth. This would be an improvement on a sequential basis. In the September quarter, organic revenue growth was at 3%.
Even so, reported growth would look far better owing to the GSK CH merger. For perspective, HUL’s overall revenues had increased by 16% year-on-year during the September quarter. Including the impact of the merger, analysts expect year-on-year HUL’s revenue growth for the December quarter to be in high teens.
As far as various segments go, it will be interesting to watch the recovery in HUL’s discretionary segments. Broadly, the company’s winter portfolio is expected to perform well. The food and refreshment segment is expected to see good growth. “We expect (1) good pickup in winter portfolio (strong 3Q) after a late start (soft preseason stocking in 2Q), (2) bounce back in GSK-CH portfolio revenues to 10% growth following supply-side disruption in 2Q, (3) improvement across color cosmetics, deodorants and out-of-home consumption categories, (4) continued weakness in detergents," said Kotak in a report on 8 January.
Edelweiss Securities Ltd expects HUL’s sanitiser business to come off sequentially. “However, health, hygiene and nutrition should still do reasonably well, although we don't expect it to grow in double digits as in Q2FY21," they said in a report on 6 January.
On the profitability front, increase in raw material costs is a concern. Accordingly, HUL’s gross profit margins are expected to contract owing to high inflation in the tea and palm oil, which may be partly offset by price increases. In the September quarter, overall gross margins had declined by 145 basis points on a year-on-year basis. One basis point is a hundredth of a percentage point.
Overall, management commentary on demand trends and outlook would be crucial to follow. While announcing its September quarter results, the company had said, “The worst is possibly behind us; business picking up momentum."
To be sure, valuations of the HUL stock are not cheap. Currently, the shares trade at almost 58 times estimated earnings for financial year 2022, based on Bloomberg data.