HUL Q4FY18 results preview: Rise in rural demand to aid performance

Hindustan Unilever (HUL) is likely to announce its fourth quarter results later in the day today. According to analysts, HUL will gain from: 1) expected pick‐up in rural demand; 2) lower goods and service tax (GST) rates on more than two-third of its portfolio; and 3) benefits from sustained cost‐savings programs.

In the previous quarter (Q3FY18), the company, reported 28% year-on-year (YoY) rise in net profit at Rs 13.26 billion. The FMCG major had reported a net profit of Rs 10.38 billion in the corresponding quarter last year.

On a year-to-date basis, the stock has rallied around 9.6% and has outperformed the Nifty FMCG index that gained around 6% during this period, ACE Equity data shows. By comparison, the Nifty50 index has gained around 3% YTD.

Here’s what leading brokerages expect from the company in the March 2018 quarter.

PRABHUDAS LILLADHER

HUL should drive strong growth, given depth and breadth of portfolio across categories and price points, right to win in emerging categories, significant expansion in distribution in low penetration states in North and Central and strong push in high growth naturals segment. We estimate 17.7% EBITDA CAGR and 19.6% profit after tax CAGR over FY18‐20. For volume growth, we estimate a 6% rise based on gradual improvement in demand. Near‐term returns will be slow to come after the 50% up move in the last one year, though long‐term outlook remains bright.

KOTAK INSTITUTIONAL EQUITIES

Revenue growth of 14% is expected in the company’s domestic FMCG business. We suggest healthy share gains for the organized players in the sector in categories such as soaps and detergents with HUL being a key beneficiary. EBITDA margin is likely to expand 130 basis points (bps) y-o-y aided by 240 bps expansion in GM (partly GST-linked). We model some reinvestment of this GM expansion into higher advertising & promotion (A&P) intensity.

EDELWEISS

We expect HUL to record a volume growth of 5-6% YoY. Volume growth is likely to be stronger on the back of: (i) improving sentiment and preference towards HUL products such as Lever Ayush, etc; (ii) wholesale trade and channel rebalancing; and (iii) Cash and carry channel continuing its good run.

Rural has stepped up but not significantly, but urban growth has also started improving. With respect to pricing, a blended price hike of 1-2% YoY can be expected. This will give an overall revenue growth of 7% YoY.

MOTILAL OSWAL SECURITIES 

HUL’s volume growth is likely to be the second highest in 10 quarters at 7%, as rural continues to do well and both CSD/wholesale seem to have normalized for them (sales growth is likely to be at 9.4%). EBITDA margin should expand 110bp YoY. Profit is expected to increase 6.9% on a YoY basis.