HUL’s volume growth may remain tepid in Q3: Nomura

Hindustan Unilever (HUL), the country’s largest consumer goods company, may see a muted volume growth in the October-December period, as festive demand remained weak, brokerage Nomura said on Thursday. The company would also see a pressure on its gross profit margins from higher cost of commodities as it has refrained from taking new prices in Q3, Nomura said.

Most fast-moving consumer goods (FMCG) companies had anticipated demand to pick up in rural and semi-urban areas in Q3, after two quarters of weak recovery in these areas. While urban demand has been stable, rural demand has been slow on back of weather uncertainty and inflationary pressures, experts said.

“Consumer demand in Q3 remained lacklustre with no material change quarter-on-quarter versus our expectation of a gradual improvement on account of festive season. Volumes remained impacted due to a weak demand environment,” Nomura said.

While the premium segment is performing better than the mass segment, the global brokerage said winter loading in October-November for HUL was normal, with offtakes yet to be seen.

“We expect volume growth in Q3 to be similar to Q2FY24. We expect similar trends to continue for another couple of quarters, with normalisation likely post Q1FY25,” Nomura added.

While HUL has been losing market share at the mass end, it will largely hold up, gaining volume share in 75% of its business and value share in 60% of its business, Nomura said.

Operating profit margin expansion, Nomura said, in Q3 would be limited as HUL would continue to invest in ad spends and brand-building activities to fend off competition.