ET Intelligence Group: With two of the biggest FMCG companies HUL and ITC announcing their Q2 results on Wednesday , comparisons are bound to come up, especially when HUL’s first quarter performance was unimpressive, and ITC promised some sort of a recovery . Incidentally, both FMCG stocks have taken a beating on the bourses in the past month, correcting by 7% and 5.5%, respectively.
With ITC’s cigarette volumes estimated to increase by 3%, it is expected to turn in an encouraging performance. In contrast, HUL is likely to post volume growth in the range of 2-3%, continuing with the trend of tepid volume growth.
A price rise is expected to lead to an overall revenue growth of 5% for HUL. Management commentary on the nature of consumer demand during the ongoing festival season would be key. With raw material prices picking up over the preceding quarter, it will be interesting to see how the company balances top line growth and profitability. One can expect modest gains on the margins front with higher input costs and scale back of promotions.
In the case of ITC, the performance of its non-cigarette businesses would be another important thing to watch out for. Noncigarette FMCG segment may bear the brunt of the subdued consumer demand. Despite an improved second quarter performance, the ITC stock may fail to brighten up. The uncertainty over how tobacco will be taxed under good and services tax (GST) is keeping the company’s stock price under pressure and a positive Q2 performance may do little to perk up sentiment.
But for HUL, a tepid performance in the September 2016 quarter results doesn’t necessarily mean a lasting negative. Its stock may still gain in the quarters ahead as impact of a favourable monsoon and pay commission benefits will brgin to bear fruits.