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Hindustan Unilever (HUL)
Continued weakness of consumer sentiments is likely weigh heavy on the sales momentum of some consumer companies in Q1. Volume growth will remain muted for HUL. HUL is estimated to post 13% yoy revenue
growth backed by volumes growth of 5 to 6% yoy given continued slowdown in personal products. Expect EBITDA margins to improve marginally by 30bp aided by benign raw material prices. However, higher taxes will contain PAT growth at 12% yoy (adjusting for one off other income gains in Q1FY13).
Source: BofA-Merrill Lynch
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We expect HUL's 1QFY2014 volume growth to be at ~6% yoy. Although the slowdown witnessed in the FMCG sector is expected to persist for the next few quarters, we believe India's long-term consumption story is intact. Consumption in many categories, with potential for high growth rates, is still very low in urban India. In rural India, the penetration of these products is even lower. With rising income levels and changing consumer behavior in the country, consumer spending on branded FMCG products is set to rise.
Source: Angel Broking
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We expect sales growth to moderate further in the quarter, on account of weakening pricing and lower volume growth. The company shall, however, register gross margin gains (decline in palm oil prices), leading to significant margin expansion, despite strong growth in advertising spends. EBITDA gains shall be significant (17%, y/y); however, we have factored in lower other income and higher effective tax rate, which lead to our PAT growth being close to nil.
Source: Kotak Securities
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HUL is expected to report a 10.5% growth in sales to Rs70.5bn, led by 5% increase in volumes. Gross margin is expected to expand by 120bps to 48.4% due to 35% lower PFAD prices and benign prices of coffee. EBITDA margins are expected to improve 50bps to 15.7% as higher ad spends and royalty will curtail gains. 43% decline in other income and 170bps increase in tax rate will curtail PAT growth to 2% YoY. Volume growth in discretionary segments in personal care and foods will remain under pressure. Soap and detergent margins will taper off, given aggressive discounts in soaps and elevated ad-promotions in detergents.
Source: Prabhudas Lilladher
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Wipro
We expect muted revenue growth of 1%qoq in Q1 (USD terms) given slow traction in deal wins and seasonal weakness in India/ME. We expect EBIT margin to expand marginally (20bps qoq) on benefit from INR depreciation and partially offset by impact of 1month of wage hike in June.
Source: BofA-Merrill Lynch
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The profitability of Wipro is expected to decline by 6.0% qoq due to hiving off of non-IT businesses along with negative impact of wage hikes. We believe FY2014 will again have the trend of divergent growth rates among tier-I companies with TCS and HCL Tech growing higher than the industry's average (in mid teens) and Infosys growing in single digits. The IT spend now is driven due to trends such as increased off-shoring of work from Europe and vendor consolidation. Market share gains in the renewal deal pipeline will be a key differentiator of volume growth across players in our view.
Source: Angel Broking
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We expect Wipro to report IT Services revenue growth of 0.1% in USD terms to US$1,587m, in line with their guidance of -0.6% to 1.6% QoQ growth. We expect volumes to grow by 0.7% sequentially, with realization decline of 0.1% QoQ. EBITDA margin is expected to expand by 12bps despite currency depreciation. We are expecting the management commentary to be more positive. We expect Wipro to guide for 2-4% QoQ growth for Q2FY14.
Source: Prabhudas Lilladher
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We expect volume growth of the Top 4 companies to be in the 1% - 3% range. While April - June quarter has traditionally been a strong quarter for the sector, the macro uncertainty and the consequent soft demand scenario will continue to impact growth rates. The rupee depreciation will lead to hedging losses for companies depending on the extent of hedges. Companies follow different hedging strategies and different accounting policies. This may lead to corresponding impact of currency volatility on other income. Consequently, PAT is expected to grow by about 3% QoQ for companies under our coverage.
Source: Kotak Securities
