 "HUL Q2 preview: PAT likely to slip as margins weigh; Revenue to rise 4%")
Hindustan Unilever known for brands like Surf Excel, Dove, and Horlicks is likely to report a marginal decline in profit after tax (PAT) by 0.12 per cent on an average in its second quarter ended September 30, (Q2FY25) to Rs 2,664.8 crore owning to slow demand recovery as negative pricing persisted in the quarter. Negative pricing happens when supply is too high relative to demand.
In the corresponding quarter of the previous year, the company reported a PAT of Rs 2,668 crore, as per brokerages tracked by Business Standard.
Further, analysts expect the fast-moving consumer goods (FMCG) company's revenue to grow 4.2 per cent on an average to Rs 15,659.13 crore as compared to Rs 15,027 crore year-on-year (Y-o-Y). The growth in cigarette, FMCG, hotels, and agri revenue is likely to boost revenue.
Similarly, its Earnings before interest, tax, depreciation, and amortisation (Ebitda) is likely to remain flat at Rs 3,698.7 crore on average as compared to Rs 3,694 crore a year ago. Analysts expect the discontinuation of GlaxoSmithKline Consumer Healthcare's distribution agreement for over-the-counter (OTC) products on November 8, 2023, to put pressure on operating income.
Similarly, HUL's Ebitda margin is also estimated to remain flat owing to higher ad-spends, higher royalty payment, and GlaxoSmithKline's (GSK) consignment sales termination. Margins for the quarter under review are estimated in the range of 23.4 to 24 per cent as against 24.6 in the corresponding month of the previous year.
Additionally, consumer response to the new formulation of Lux and Lifebuoy, competitive advantage, demand outlook on rural and urban, competitive intensity, and raw material trends will be on analysts' radar.
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The company is set to announce its Q2FY25 numbers on Wednesday, October 23.
Here’s what brokerages expect from HUL's Q2 results:
Axis Securities: Analysts at Axis expect the revenue of HUL to grow 4 per cent Y-o-Y as rural demand is outpacing urban. They peg the revenue for the September quarter at Rs 15,621 crore as against Rs 15,027 crore a year ago.
Meanwhile, they expect Ebitda margins at 24 per cent as compared to 24.6 per cent a year ago.
Kotak Institutional Equities: The brokerage expects a 5 per cent Y-o-Y growth in Underlying Volume Growth (UVG) against 4 per cent/2 per cent in 1QFY25/2QFY24.
Further, Kotak analysts expect HUL's home care business to grow by 5.3 per cent Y-o-Y, beauty and personal care revenue to grow by 3 per cent Y-o-Y aided by an uptick in personal wash, and the food & refreshment segment to grow by 4.5 per cent quarter-on-quarter (Q-o-Q).
Nuvama Institutional Equities: Nuvama analysts anticipate demand recovery to be gradual for HUL as negative pricing is likely to reverse in H2FY25.
Additionally, as per them, the base quarter included a one-off credit from the resolution of tax litigation will benefit both revenue by 1 per cent and PAT by 4 per cent.
In Q2FY25, the brokerage reckons the company's standalone revenue to grow 4 per cent Y-o-Y. Analysts at Nuvama peg revenue for the second quarter at Rs 1,5628 crore.
Meanwhile, they expect pricing cuts to be by 1 per cent, lower than 2.5 per cent in Q1.
As per Nuvama, in palm oil, some inflation was seen, but HUL is benefiting due to its new formulation in two brands. Meanwhile, other commodity costs remain benign. Due to a one-off, the gross margin shall decline 153 bps Y-o-Y to 51.2 per cent, whereas the Ebitda margin shall contract 112 bps Y-o-Y to 23.5 per cent.