HUL Q1 results preview: Muted volume growth likely due to demand slowdown

HUL Q1 results: Analysts say that the FMCG company's profit margins will continue to bear the brunt of high commodity prices, which were at peak highs for the most part of the quarter.

Fast-moving consumer goods major Hindustan Unilever (HUL) is slated to report its April-June quarter (Q1FY23) results on Tuesday, July 19. Analysts estimate the company to post yearly revenue growth of 6-15 per cent, and up to a 12.6 per cent increase in net profits.

The company’s sales growth is expected to have been led by price hikes as volumes remained muted in the quarter due to continuous demand slowdown in rural markets and consumers downgrading to low price units.

Analysts add that the FMCG company’s profit margins will continue to bear the brunt of high commodity prices, which were at peak highs for the most part of the quarter. Sequentially, the EBITDA margins may fall by up to 110 bps to 23 per cent. On a yearly basis, these may decline by up to 90 bps. 

Meanwhile, most brokerages, barring ICICI Securities, expect yearly volume growth to be in the range of 1.5-3 per cent vs a volume growth of 9 per cent in the year-ago period.

Key monitorables: Outlook on the company's nutrition business, discretionary, and out-of-home demand, rural vs urban demand, signs of prolonged recovery in rural markets, commentary on raw material costs and margin trajectory, and impact of price hikes on demand. 

Here’s what brokerages expect from the company’s Q1FY23 results:

Motilal Oswal: The brokerage expects HUL to post a 2 per cent YoY rise in volume on a high base. It expects the company’s gross margins to contract by 130 bps YoY due to high raw material costs. The recent correction in palm oil prices may favour the company in the second half of FY23. 

Centrum Broking: HUL’s volumes will likely suffer as consumers are downtrading to LUPs (low unit packs) due to sharp inflation. An adverse macro-environment has also led to sluggish demand for the firm’s key categories like beauty and personal care. It has built-in 1.5 per cent YoY volume growth, largely driven by a slower recovery in revenues in rural markets. Besides, input price pressure coupled with an inferior product mix will weigh on margins. It expects a YoY decline of 9 bps in EBITDA margin, it said. 

Sharekhan: Sharekhan expects revenue to grow 15 per cent on year led by 25 per cent, 9 per cent and 5 per cent YoY growth in home care, personal care and food categories, respectively. It sees yearly volume growth of 2-3 per cent with operating margins declining by 75 bps. PAT is expected to rise by 11 per cent from last year. 

ICICI Securities: HUL is estimated to witness a 14.2 per cent yearly revenue growth led by price hikes of up to 10 per cent and a 4 per cent volume growth. The home care & beauty & personal care (BPC) segment is likely to see 20.2 per cent, and 5.3 per cent sales growth, respectively. Foods & refreshments sales is estimated to grow 12.6 per cent. A contraction of 141 bps in gross margins is likely, though, with a reduction in overhead spending, operating margins are likely to contract only by 28 bps from last year. Net profit is estimated to grow 9.5 per cent to Rs 2,256.7 crores.

Yes Securities: The brokerage estimates a muted YoY revenue growth of 6 per cent due to a high base of last year. It expects PAT to be flat from the previous year, while EBITDA margins to fall by 9 bps YoY and 30 bps QoQ.