HUL Q2 Preview: Inflation to take margin downhill, price hikes to aid sales growth

The revenue is seen rising nearly 15% on year to Rs 14,600 crore, the average of estimates given by eight brokerages showed, and this will largely be led by the beauty & personal care and home care segments.

The company will release its earnings on Friday.

The underlying volume growth for

is seen at 4-5% on year, which will be the highest in the industry. “We expect underlying volume to grow by 4% YoY in 2QFY23, while the balance growth will come from price/mix change,” Capital Markets said in its report.

Growth in volumes likely to be there despite muted rural consumption. Rural markets make for more than 50% of the topline for FMCG players.

Brokerage Kotak Institutional Equities expects continued strength in the home care revenue growth on the back of price hikes in laundry products. Growth trends are also improving in the body and personal care category, the brokerage said.

While the topline will see double-digit growth, profitability will continue to be marred by input cost inflation as HUL has been unable to pass on the cost fully through price hikes.

Brokerage Prabhudas Lilladher expects gross margins to shrink by a staggering 510 basis points, and operating margin by 200 bps on year.

“We model 470 bps YoY and 35 bps QoQ contraction in gross margin due to the consumption of high-cost inventory,” Kotak Equities said in its report.

The weak operational performance will restrict growth in the bottomline, even as it is seen rising in double digits. The net profit is seen rising over 10% on year to Rs 2,412.50 crore, the estimates showed.

While the rural consumption has been subdued, analysts expect it to recover in the coming quarters due to better monsoons. Besides, commodity prices have significantly eased in the last quarter, though benefits of the same will come with a lag.

Therefore, HUL’s outlook on rural market consumption, pricing trend, and overall outlook for margins will be the key monitorables.

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