Hindustan Unilever is likely to have benefited from lower commodity prices in the March quarter, resulting in gross margins improving but the higher royalty payout from February 1 and a rise in advertising expenses could limit those gains, resulting in a squeeze in margins at the operating level.

Analysts have projected net profit for the fast-moving consumer goods company at ₹2,578 crore, while revenue is seen at ₹15,329 crore, according to the average of estimates from seven brokers. In the year-earlier period, the company had reported a net profit of ₹2,481 crore on revenue of ₹13,580 crore. The company will be reporting its March quarter and FY23 results later in the day.

The earnings before interest, tax, depreciation, and amortisation are seen at ₹3,657.3 crore, putting the EBITDA margin at 23.9 percent.

Analysts have estimated gross margin to rise about 67 basis points from 48.35 per cent year-earlier period.

In January, the company said its board has approved a higher royalty payout to its parent, Unilever, at 3.45 percent of its revenue from 2.65 per cent being paid over the last ten years. The hike will take place in phases and a 45 basis points increase took effect from February.

Also read: HUL does not rule out the possibility of a lower royalty rate to Unilever at next review

The company has spent about 8 per cent of its revenue on sales and marketing expenses in the December quarter and had indicated an increase in ad spends in the March quarter. Considering that other companies in the sector who have announced their results, such as Tata Consumer Products and Nestle India, have not shown any significant increase in ad spends, it remains to be seen how much HUL has spent in the reporting quarter.

HUL had also taken some price hikes in January on some of its products and part of the rise in revenue will be attributed to this. Revenue growth would also have been aided by a rise in volumes and analysts have estimated that volumes would have contributed 6-7 percentage points.

Analysts will be looking for management commentary on how the company plan to tackle competition from Reliance Retail, which recently announced a slew of launches in the FMCG segment. They will also be looking for direction on the change in guard with Rohit Jawa replacing Sanjiv Mehta at the corner office by the end of the current quarter.

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