Hindustan Unilever is set to announce its fourth-quarter results on Wednesday. The results are expected to be muted as weak rural demand continues to impact the fast-moving consumer goods major’s volume growth.

What To Expect: Hindustan Unilever’s quarterly net profit and revenue are both likely to register declines amid ongoing pressure in sales.

The median of nine brokerage firms’ estimates suggest that HUL’s revenue for the quarter is expected to be around ₹14,893 crore, a decline from ₹15,053 crore reported in the same quarter last year. The profit is forecasted to be ₹2,418 crore, down slightly from ₹2,471 crore earned last year.

Analysts anticipate a decline in the EBITDA margin due to increased royalty payments, higher advertising expenses and slower sales growth.

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Sectoral Problems: The FMCG sector has witnessed several players reducing prices to stimulate demand and gain market share. These price reductions are expected to have a negative impact on HUL’s revenue growth. With lower realisation growth and a lack of sustainable recovery in rural areas, HUL’s volume growth for the quarter is projected to be between 2.5%-3%, with urban areas driving growth more than rural areas.

Moreover, benign raw material costs and increased competition from regional, unorganised players are likely to affect volumes for larger companies like HUL.

Deals Disappear: Nuvama Institutional Equities highlights an adverse impact of ₹75 crore on sales due to the expiration of the distribution agreement with GSK Consumer. HUL stopped selling GSK’s products in India from November 2023, affecting brands like Sensodyne, Crocin, Otrivin and Eno.

HUL has also revised its royalty payments to Unilever, with an increase from 2.65% to 3.45% of the total turnover over three years. The first increase of 45 basis points took effect from February to December 2023 and the second increase of 25 basis points started from January 2024 and will last until December 2024.

This quarter will see the impact of the second hike in royalty payments, putting further pressure on the EBITDA margin.

Price Action: Ahead of its results, Hindustan Unilever’s share price was down 0.35% at ₹2,254.90 in afternoon trade on Wednesday. The stock is down 15% so far this year.

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