FMCG Top Rivals In Focus: ITC, HUL Shares In See-Saw Ahead Of Q2 Report Card

Heavyweight stocks like Hindustan Unilever (HUL), and ITC in the FMCG basket traded on a volatile note during Thursday's session ahead of their Q2 numbers which will be announced later in the red. In the September 2023 quarter, ITC's volume growth is expected to be healthy. However, HUL, the largest FMCG player in terms of market share may post single-digit growth in the top-line front.

Both HUL and ITC are in a neck-to-neck battle to grab the title of the largest FMCG company in India in terms of market share. Currently, HUL is the largest FMCG player with an m-cap of over Rs 5.99 lakh crore, while ITC follows closely with a m-cap of nearly Rs 5.61 lakh crore as of October 19, 2023.

Here's what to expect from HUL and ITC earnings in Q2FY24.

Hindustan Unilever:

HUL shares traded marginally lower at Rs 2,546.70 apiece on BSE, at the time of writing. The stock ranged from Rs 2,553.60 to Rs 2,521.10 during the day.

In Q2FY24, Centrum estimates 5.7% revenue growth YoY for HUVR on the back of 3% volume growth (similar to Q1 at 3%) and the rest by price/ mix. As inflation settles down, with price increases for detergents and soaps we expect volume to come back at a comparable pace. However, the rural slowdown largely in central India limited its growth in the brokerage's view.

Brokerage's note added, "On HFD portfolio, the company has increased prices for Horlicks while the category has been declining for the last 6-8 quarters in our view. On the care portfolio, HUL took price cuts which boosted volumes in Q2 expect 7% growth. Overall growth would be lower for Food at 2.5%, followed by BPC at 6%. In our recent channel partners conference they indicated some visible down trading on the back of higher inflation which has now retracted in urban markets while rural continued to face sluggish demand for its key categories, especially BPC (hair and skin)."

Further, it said, "On raw material front, most of the key raw materials have been cooling off (palm oil, vegetable oil, except barley, wheat and milk) which could help HUVR to report expansion in margin sequentially yet we expect ad-spends to inch up to ~13% of sales. We expect EBITDA to grow at 7.6%, while EBITDA margin to rise to 23.3% (+41bp) YoY, despite the increase in A & P and 45bp increase in royalty rate, whilst adjusted net profit could grow by 1.4% as per estimates."

Centrum has given an 'ADD' rating on HUL for a target price of Rs 2,800.

ITC:

Rival ITC traded at Rs 449.70 apiece, down by 0.41% on BSE. The stock ranged from Rs 446.90 apiece to Rs 454.55 apiece respectively during the day.

On ITC results, Anushi Vakharia, Research Analyst, StoxBox said, "We expect ITC Ltd. to report volume growth in the mid-single-digit range for its cigarette business on the back of the segment reporting market share gains and innovation. In the previous quarter, the business reported a robust performance in its FMCG business led by the business ramping up its rural distribution reach."

However, Vakharia added, "Considering the overall weak monsoon evidenced in August, we expect this growth rate to be subdued. Meanwhile, we expect GP and EBITDA margins to expand in the 100-150bps range with key raw material prices falling off from their earlier levels and higher focus on premiumization."

Also, she said, a key development to remain watchful is the company's outlook on its agribusiness which is under pressure and hampering the overall growth of the company after the government's decision to place restrictions on wheat and rice exports.

Meanwhile, Centrum said, "In Q2, we expect ITC to report 5.5% revenue growth led by strong growth in cigarettes portfolio and other FMCG segments. Our channel checks suggest ITC's cigarette segment to grow ~8.9% in value and ~5.0% in volume terms, considering the normalised base and improved OOH consumption. We expect the FMCG segment to continue its growth momentum, with ~14.5% revenue growth as out-of-home consumption driving demand for packaged food including ready to eat segment also supported by distribution scale up. The hotels segment could report ~12.5% growth YoY (very high base) with strong domestic tourism demand across hotel segments and heightened demand from corporate bookings, yet occupancy rates remain higher at +70% despite a rise in ARR at 10%."

The brokerage added, "Though paper prices are now correcting, on a higher base last year, the round of inventory correction in the trade to weaken growth for paper segment with ~2.5% decline in revenues. We expect agribusiness to decline ~6% YoY considering higher export elements in the base quarter. Due to the decline in agribusiness, despite other businesses firing well, overall revenue growth to moderate for ITC. On the operating margin front, we expect EBITDA to grow at 10.6% with EBITDA margins at 37.3% (+170bp). We expect net profit to increase by 10.5% driven by higher other income."

Disclaimer:

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