Fast moving consumer goods (FMCG) giant Hindustan Unilever Ltd (HUL) will report its Q2 earnings on Monday. The company's profit after tax (PAT) is expected to rise by 18 percent year-on-year (YoY) but volume growth is likely to moderate.
Analysts are expecting a muted quarter primarily because not much has changed in terms of demand conditions in Q2 as against Q1. The increase in demand due to the ongoing festive season will be reflected in the third quarter numbers.
However, the demand conditions have been challenging in the second quarter. Rural demand has been fairly sluggish primarily because in Q1 rural and urban demand were growing at the same space. Now, rural demand is growing at 0.9 times the urban growth. Recovery is expected in the second half.
While the sentiment is almost at an all-time low, the stock price is at an all-time high. The valuations are fairly high as well.
The street is expecting a 5.5 percent growth in the company’s revenue. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) is likely to grow by 14.5 percent, which means there would be a bit of a margin expansion that would come by on account of the company’s own cost cutting measures. Further boost is expected from the transition to Ind-AS 116, which could raise Ebitda by 100 basis points.
Net profit is expected to grow at around 18 percent to Rs 1,800 crore, partly due to the benefit from the corporate tax rate cut announced by finance minister Nirmala Sitharaman last month.
Volume growth is expected at 4 percent, which would be one of the lowest in at least the last eight quarters. The important thing to look for will be the management commentary in terms of its expectation of demand growth going forward, not just for HUL but for the entire sector given its sheer size and scale.