UN Unilever NV

TAKING THE PULSE: Indian cigarette maker ITC Ltd. is expected to report strong earnings growth for its first quarter through June, while consumer goods company Hindustan Unilever Ltd. is likely to post a marginal dip in profit.

Analysts said revenue growth at ITC and Hindustan Unilever will primarily be driven by sales volume growth as increased competition has restricted their ability to raise prices.

Operating margins could come under pressure as consumer goods companies won't rein in advertising and promotion expenditure given the intense competition in the sector, analysts said, adding that higher raw material costs will also hurt quarterly margins.

But there are signs that, like the previous quarter, food price inflation won't have much of an impact on sales, even though higher food costs typically tend to restrict discretionary spending on items such as personal care products.

COMPANIES TO WATCH:

Hindustan Unilever Ltd. (500696.BY)--July 27

Market Expectations: The average forecast in a Dow Jones Newswires poll of 12 analysts is for Hindustan Unilever to post net profit of INR5.42 billion on sales of INR48.27 billion. In the April-June period last year, the company reported net profit of INR5.43 billion on sales of INR44.76 billion.

Key Issues: Analysts will watch Hindustan Unilever's local sales, which rebounded strongly with an 11% expansion in volume in the three months through March. The company is facing intense competition in its core soaps and detergent segment in India, forcing it to make price cuts in a bid to regain market share.

Bank of America-Merrill Lynch said the 11% sales volume growth in the January-March quarter isn't sustainable and it forecasts growth in the high single-digits for the April-June period.

CLSA forecasts earnings before interest, tax, depreciation and amortization, or EBITDA, margins to contract 260 basis points from a year earlier due to price cuts, higher advertising and promotion spends, and higher royalties paid to parent Unilever PLC (UL).

ITC Ltd. (500875.BY)--July 22

Market Expectations: The average forecast in a Dow Jones Newswires poll of 11 analysts is for ITC's first quarter net profit to rise 17.5% to INR10.33 billion on an 18.3% increase in sales to INR48.30 billion. A year earlier, India's largest cigarette maker by sales reported net profit of INR8.79 billion on sales of INR40.83 billion.

Key Issues: Analysts will look to see how far cigarette sales volume dipped after ITC resorted to a steep 14%-15% price increase during the quarter to offset higher taxes.

Some analysts have forecast a 3%-4% year-on-year decline in cigarette sales volume.

ITC's non-tobacco consumer business will also be scrutinized. The business--which includes packaged foods and home and personal care products--has yet to break even and analysts will look to see how expenses related to the launch of new products, such as creams for achieving fairer skin, will affect the April-June results.

 
   -By Rumman Ahmed, Dow Jones Newswires; 91-9845104173; rumman.ahmed@dowjones.com 
 

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