MOTILAL OSWAL SECURITIES
We expect Hindustan Unilever’s revenue to grow 15% y-o-y, with underlying domestic volume growth of 15% in Q1FY19. Gross margins are likely to expand 100 bps y-o-y to 53.1%. We expect operating margin to expand by 150 bps YoY to 23.4% in 1QFY19, leading to EBITDA growth of 22.9% YoY. Adjusted PAT is likely to grow 23.9% YoY to Rs 16 billion.
We expect HUL
to record a volume growth of 11-12% YoY on a flat base (Q4FY18 saw volume growth of 11% on a base of 4%). Volume growth is likely to be stronger on the back of: (i) improving sentiment and preference towards HUL
products such as Lever Ayush, etc (ii) wholesale trade (iii) new launches performing well.
HUL has also heightened its competitive intensity in oral care category. Rural has stepped up, which is also helping in overall growth. With respect to pricing, a blended price hike of 1% YoY can be expected. This will give an overall revenue growth of 11.5-12% YoY. We expect HUL to report higher ad spends too, to back their new launches.
We expect HUL to report double-digit sales growth, led by recovery in consumer demand and stabilisation in trade channel while base effect will act as an additional tailwind. It sees a 26 per cent YoY and 15 per cent QoQ rise in its net profit at Rs 16.23 billion. Sales may rise 14 per cent YoY and 7 per cent QoQ at Rs 97.11 billion.
Trade related issues in wholesale and CSD are largely over, although the recovery has been stunted for several players who had higher dependence on wholesale trade. Companies who had expanded direct reach in the past few years are at an advantage.
However, companies with limited product basket are finding it difficult to expand distribution. HUL and Britannia which had significantly expanded direct rural reach in past 2-3 years stand out.
For HUL, we expect strong growth momentum to continue. We would watch out for trend in sales of Personal care and margins in Home care.
KOTAK INSTITUTIONAL EQUITIES
With strong demand, most companies are in a comfortable position to pass on increase in raw material prices to customers. Q1FY19 revenue pegged at Rs 96,396 million and PAT at Rs 14,154 million.