Hindustan Unilever Q1FY18 preview: GST disrupted profits?

FMCG major Hindustan Unilever is set to announce its financial result for the quarter ended on June 30, 2017. 

In the fourth quarter of last fiscal, HUL had reported a net profit of Rs 1,183 crore, a rise of 8% on quarter-on-quarter basis. During the quarter, the company's domestic consumer business grew by 8% with underlying volume growth of 4% and EBITDA margin expanded by 90 basis points. 

EBITDA for the quarter was at Rs 1,651 crore, a jump of 12% as against Rs 1470 crore in the previous quarter. As per the company's statement, the net sales grew by 7% during the quarter.

What next?

The first quarter of FY18 was another turning point for FMCG companies after demonetisation. Simple reason was the discounts these companies offered in order to liquidate in June before the roll-out of Goods and Service Tax (GST).

Destocking was greater in those channels where the price after GST was going to be higher than before and accelerated in the last 10 days of the quarter. While those companies more dependent on wholesale would be more impacted.

Analysts expects the EBITDA and PAT of FMCG companies to slowdown in Q4FY17.

Kotak Institutional Equities in its research report said, “We expect 1QFY18 to be a weak quarter dragged down by destocking impact on account of GST transition (especially in wholesale/CSD channel); most companies in our coverage (ex-retail) have lost 5-15 days of sales in June due to destocking.”

As per ICICI Securities, FMCG firms will see sales loss of 8 to 15 days during the quarter – which will lead to flat revenue.

What experts say for HUL?

Motilal Oswal in its research report said that HUL's revenue likely to grow by 2%  with an
underlying ~1% volume decline. 

"We estimate EBITDA and PAT growth of 2% and 3% YoY, respectively. We expect operating margin to remain flat at 20.1% in 1QFY18," the report said.

Prabhudas Lilladhar in its quarterly preview report said, "HUVR is expected to report 4.3% increase in sales on 1.5% increase in volume as destocking has impacted CSD channel. We estimate flat margins and EBITDA at Rs 17.1 billion; Adj. PAT is expected to increase 6.1% at Rs 11.96 billion. Pace of GST implementation across distribution chain will hold key to Q2 growth."

Having similar views, ICICI Securities said that the company's revenues to expand 6% YoY due to 7% YoY revenue growth in home care segment and 6% growth in personal care product segment. Refreshment and food segments are expected to report revenue growth of 5% and 5%, respectively.

"We expect gross margin to decline 34bps and expect EBITDA margin to expand 20bps YoY. EBITDA and net profit are expected to expand 7.1% YoY and 13.8% YoY respectively," ICICI Securities report said. 

With a same view of "muted" performance, HDFC Securities expect HUL's revenue growth of 1% with domestic volume decline of 1%. "Cost control can result in EBITDA margin expansion of 21bps to 20.3%.

Gross margin can be marginally down by 34bps YoY," the report said. 

On Monday, the shares of the company closed at Rs 1152.80 per piece, up 1.15% or Rs 13.10 on BSE.