HUL Q2 net seen up 6.5%, sales volume growth key to watch

Hindustan Unilever ( HUL ) shares fell more than 2 percent on Friday as investors turned cautious ahead of its second quarter (July-September) results on Saturday. This is especially after its parent company Unilever on Thursday reported dismal sales growth in its emerging markets portfolio and its rival ITC reported lower-than-expected growth in sales in the July-September quarter.

Unilever, the parent company of HUL, on Thursday reported underlying sales growth at 3.2 percent for September quarter, in-line with reduced sales guidance given in October. It had cut its sales growth guidance from 5 percent in Q2 to 3.0-3.5 percent for Q3CY13 due to slowdown in emerging markets.

Sales growth from emerging markets (accounts for 55-60 percent to Unilever's total revenues) fell to 5.9 percent in Q3CY13 as against 12.1 percent in a year ago period and 10.3 percent in June quarter. India has second largest contribution after Brazil to Unilever's emerging market portfolio.

Earlier, HUL management after its June quarter results had cautioned too that slowdown will continue in the market . "Discretionary spends are under pressure. As far as competition goes, the environment remains challenging and intense," R Sridhar, CFO, told on July 26.

According to a CNBC-TV18 poll, analysts on an average expect HUL's volume growth at 4-5 percent in three months period ended September 2013 as against 7 percent in a year ago period and 5 percent in June quarter.

They feel personal products division continued to remain under pressure due to slowdown in discretionary spends while soaps & detergents volume growth will be higher at around 7 percent due to higher promotions.

Standalone reported profit after tax may grow 6.5 percent on yearly basis to Rs 859 crore and net sales may increase 9.4 percent year-on-year to Rs 6,734 crore in the quarter gone by.

Earnings before interest, tax, depreciation and amortization (EBITDA), including operating income, is likely to rise 7.4 percent compared to a year ago period to Rs 1,049 crore in three months period ended September 2013.

Operating profit margin may see a muted growth of about 10 basis points Y-o-Y to 15.6 percent due to tighter operating costs and lower advertising spends.

"Price and promotion war in detergents, competition in oral care, slowdown in skin care demand and premiumisation are the key determinants in the near term," Prabhudas Lilladher report said.

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