Hindustan Unilever’s December quarter earnings are expected to be released on Thursday. The key focus of the results will be the demand from rural areas. The investors are glued to focus on this factor more than anything else.
Rural demand became the key focus element because when the company declared its second-quarter results, HUL had mentioned that the recent trends of the company were hinting towards moderating the rural demand.
Expectations from Q3 Results
The Q3 volume growth expectations are lower than those of Q2 and Q1, but at the same time, the prices of the products have increased. So, this suggests that price rise can support the revenue growth of the company for the last quarter.
Despite this, the industry experts believe that the company’s revenue growth for the quarter ended December could be up by 9 pc.
Previous Quarter Performance
Since Quarter 4 of 2020, the company’s revenue growth has peaked in Q3 FY 2020-21 where it marked the growth higher than 28 pc. Since then, there has been a sequential decline. However, the CAGR, which is the compounded annual growth rate, is flat at 12.3% for two quarters. The CAGR for Q4 of FY 2019-20 was negative at -4.9%.
Profitability of HUL
As commodity inflation remains high, gross margins could shrink on a year-on-year basis. However, the sequential performance of Hindustan Unilever is expected to improve. Improvement in margins is expected to be supported by lower promotional spending. It may be offset by savings in advertising and promotion.
As the FMCG companies prepare to report their Q3 results next week, investors will likely see subdued volume growth and elevated pricing.
The volume growth of the fast-moving consumer goods industry has slowed, which is expected to weigh on overall revenue growth. Higher commodity costs are also expected to harm the bottom line.
While the volume growth of the FMCG industry has slowed, the two-year compound annual growth rate is expected to remain robust. The valuations of various FMCG stocks have corrected from their highs due to concerns of demand. These companies are currently trading at multiples that are significantly higher than their estimated earnings.
HUL’s close peer, Marico Ltd. is expected to benefit from robust revenue growth in the near term. In its Q3 pre-quarter update, the company said its consolidated revenue grew about 15 pc.
Domestic volumes of Marico Ltd. are expected to grow at a flat rate in the December quarter, compared to the 8% growth in the previous quarter. As far as CAGR is concerned, the peers, Marico and Dabur might have a better rate.
Even though rising raw material prices are denting margins, Nestle India could still sustain double-digit growth. Britannia Industries revenue growth is expected to increase by around 8% for the concerned quarter.
Who are HUL’s peers in the FMCG domain?
The peers of Hindustan Unilever Ltd. in the FMCG industry are Dabur India, Godrej consumer products, Nestle, Britannia, P&G, Emami, Colgate, and Marico. These are some of the closest peers of HUL with whom the company’s financial statements can be compared with.
What is CAGR?
CAGR stands for Compound Annual Growth Rate. It is the rate of return that an investment needs to generate to reach its end balance. A primary assumption for calculating CAGR is that all the profits generated shall be invested back into the business. The CAGR is used to compare the performance of two companies belonging to the same industry or sector.
How to interpret the compound annual growth rate?
The compound annual growth rate is a measure that shows you how much faster an investment would have grown had it been maintained at the same rate each year. It is not a real rate of return. Although it’s unlikely that companies will be able to sustain this level of performance, it can be used to smooth out returns.
Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.