A worker checks a mobile device at a warehouse in Bengaluru, India. (Photographer: Samyukta Lakshmi/Bloomberg)

HUL Expects Steady Earnings Growth Helped By Volumes, Price Hikes

Hindustan Unilever Ltd. is expected to report stable earnings growth in the quarter ending September aided by volumes and price hikes.

India’s largest fast-moving consumer goods maker’s volumes are expected to grow 7-8 percent during the quarter, according to a Bank of America Merrill Lynch’s research note. That’s higher than the 4 percent growth in sales in the corresponding period last year—the first like-to-like comparable quarter since the goods and services tax was rolled out in July.

The maker of Surf XL and Lux reported a double-digit growth in volume in the last three quarters mainly due to a low base after demonetisation, the home and personal care segments and a rise in rural demand.

The outlook for demand remains positive during the reporting period, broking firm CLSA said in a note. The demand is likely to get a further fillip from pre-election spending and minimum support price hikes for key crops, it added.

Financial services provider Macquarie said the company’s focus on cost cuts is unprecedented and its supply chain management under the GST regime is likely to aid volumes.

The FMCG maker hiked prices in the range of 3-4 percent, mainly in the home care segment that contributes over a third of the company’s revenue. The price hikes, according to CLSA, are expected to be partially visible in the ongoing second quarter and fully visible in the third quarter of the financial year ending March 2019.

The consumer staples sector recently faced pressure due to a rise in input costs on account of higher crude and weakening rupee, which increased import costs for certain raw materials. This has been partially offset by lower palm oil prices and the average price hikes across categories by the company.


HUL, the most expensive stock on the Nifty FMCG Index after Britannia, has a forward price-to-earnings multiple of 55 for financial year 2018-19. That’s higher than its five-year average of 47 times.

Thirty-eight percent of the 46 analysts covering the stock have a ‘Buy’ rating on the counter, according to Bloomberg data. While 38 percent suggest a ‘Hold’, 24 percent have a ‘Sell’ rating on HUL. The consensus indicates a price target of Rs 1,738 apiece, a potential upside of more than 5 percent from current market levels.

(Corrects an earlier version to attribute volume growth estimate to Bank of America Merrill Lynch)