HUL marks steady end to FY23 but brokerages trim EPS estimates on Q4 miss

FMCG market (urban and rural) registered flat volume growth in the March quarter, as per Nielsen data

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India’s largest fast moving consumer goods company Hindustan Unilever has reported a 16 percent growth in FY23 revenue at Rs 58,154 crore, with 5 percent underlying volume growth. While the topline surge outpaced the overall industry growth, the Q4 volume growth of 4 percent failed to match Street estimates.

The fourth quarter operating margins at 23.3 percent also missed the Street estimate of 23.9 percent. On a year-on-year basis, margins were lower by 80 basis points.

At 10am, Hindustan Unilever shares were trading at Rs 2,425 on the NSE, lower by 1.74 percent. The stock had closed 1.6 percent lower on April 27 too, after the results were announced.

“The overall FMCG market volume growth should be 4-5 percent, while commodity prices remain steady, only then the volatile scenario can turn a corner,” chief executive officer Sanjiv Mehta said after Q4 earnings.

The FMCG market (urban and rural) registered flat volume growth in the March quarter, Nielsen data shows.

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The marginal slip in fourth quarter numbers has led to slight trimming of EPS (earnings per share) estimates. Jefferies has cut EPS estimates by 1-2 percent to factor in the miss. Noting the sharp sequential slowdown in home care segment, the broking firm has cut its target on the stock to Rs 2,875, while retaining its ‘buy’ rating.

Motilal Oswal Financial Services has also maintained the ‘buy’ tag with a target at Rs 3,010 but cut its EPS estimates by 2-3 percent for FY24/FY25. “We believe that HUL will get back to the mid-to-high teens earnings growth trajectory it exhibited for the four years before Covid,” it said.

The key for HUL is now growing its rural volumes. “When wallet size is small, the impact of inflation is big. Moreover, subsidy schemes have been slashed and free food grain programme has been halted,” Mehta said in the press meet.

That said, he takes heart in the fact that the rural volume decline is moderating. For FY23, HUL’s rural volumes declined 7 percent, while in Q4 FY23, the de-growth was 3 percent.

As ad spends are ramped up further, operating margin is expected to go back to the pre-Covid level of 25 percent with a lag. Thus, Elara Securities has pared its FY24/25 earnings estimates by 3.7 percent/2.5 percent.

“HUL continues to guide for sequential gross and EBITDA margin improvement with stabilising inflation, narrowing cost price gap and calibrated price cuts to restore price-value equation,” according to Amnish Aggarwal of Prabhudas Lilladher.

As focus shifts to volume led growth, he has cut the FY24/25 EPS estimates by 6.9 percent/5 percent and has a target of Rs 2,785 on the stock with an Accumulate rating.

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