HUL Q4 profits beat estimates as consumer sentiment improves
Hindustan Unilever’s (HUL) net profit rises to Rs1,183 crore in fourth quarter indicating demonetisation effect on FMCG sector has receded
Mumbai: Hindustan Unilever Ltd (HUL), India’s largest packaged consumer goods maker, on Wednesday reported fiscal fourth-quarter earnings that beat analyst estimates, indicating the worst of demonetization’s impact on public spending is behind it.
The seller of Surf detergent, Dove soap and Kissan ketchup, said profit rose 6.1% from a year ago to Rs1,183 crore in the three months to 31 March. A Bloomberg poll of 24 analysts had estimated quarterly profit at Rs1,084.9 crore.
Sales rose 6.3% to Rs8,969 crore, also beating an estimate of Rs8,149.3 crore by a Bloomberg poll of 24 analysts.
“Market conditions stabilized in the quarter,” said chief financial officer P.B.Balaji.
HUL’s management said consumer sentiment was improving, and it has an optimistic outlook for the medium term, but also flagged potential short-term disruptions owing to the implementation of the goods and services tax (GST) starting on 1 July.
In the March quarter, HUL’s earnings were bolstered by a 4% increase in sales volumes, although rural sales still lagged urban numbers. It marked a rebound from a 4% decline in the December quarter after the November ban on old, high-value banknotes triggered a cash crunch and squeezed consumer demand.
HUL’s earnings before interest, tax, depreciation and amortization—an indicator of operating profitability—also rose 12%. Its operating margin increased 90 basis points to 18.8%. One basis point is one-hundredth of a percentage point.
Not only is rural growth slower, it is also more likely to feel the impact of GST, along with the wholesale channel, HUL said. The company said it is anticipating de-stocking because of GST.
Chief executive officer Sanjiv Mehta said that it will take at least a quarter more after GST’s implementation for the wholesale channel to stabilize. He declined to predict sales and profit in the current financial year. He also said the company is waiting for clarity on tax rates and the final date of implementation to firm up its strategy.
HUL’s results, which follow an uptick in sales volumes at other packaged consumer goods makers such as Dabur India Ltd, attests to a recovery in consumer demand.
“Consumer recovery is quite strong and premiumization is a strong trend, which is a positive sign for profitability of companies in the sector,” said Gopal Agrawal, chief investment officer (equities), Tata Asset Management Ltd.
HUL’s sales in the personal care segment—its largest source of revenue—rose 8% as it hiked prices for the third consecutive quarter; premium products such as Pears and Dove led growth.
“These were a solid set of numbers, particularly growth in the soaps business. However, the company has taken price hikes in Q3. Whether the increase in margins can be sustained is something to be seen," said Sachin Bobade, senior analyst at equities firm Dolat Capital Markets.
HUL shares gained 0.82% to close at Rs1,006.35 on the BSE while the benchmark index, Sensex gained 0.25% to close at 30,658.77 points. Earnings were declared after the markets closed.