HUL’s strong Q2 result indicate revival in consumer demand
Mumbai: Hindustan Unilever Ltd (HUL) on Wednesday reported robust second-quarter earnings that analysts saw as a signal that the worst is over for the packaged consumer goods sector.
HUL’s net profit in the three months ended September rose 16.42% to Rs1,276 crore from Rs1,096 crore a year earlier, beating estimates. Analysts polled by Thomson Reuters had estimated a profit of Rs1,185 crore on average.
Net sales fell to Rs8,199 crore from Rs8,335 crore in the year ago period, but that was mostly because of an accounting change for the goods and services tax (GST) which kicked in from 1 July, the company said. On a comparable basis, revenue at the country’s largest packaged consumer goods maker grew 6.5%; domestic consumer revenue grew 10%.
Those numbers indicate that the lingering effects of last November’s invalidation of high-value currency notes is over; the impact of the shift to a unified GST has been transient; and consumption growth is recovering.
“While GST did impact the trade purchases in the early part of the quarter, subsequently, things have started stabilizing and are now recovering,” said chief financial officer P.B Balaji at a press briefing. “Wholesale and CSD (canteen stores department, which sells products to armed forces personnel) were the two primary channels which were impacted significantly earlier in the quarter, and are now stabilizing gradually. In the midst of all this, consumer offtake has continued to remain stable.”
HUL’s sales by volume grew 4% during the quarter, which is being seen as a positive by analysts, even if it came off a low base; in the year-ago period, volumes had declined 1%.
“The worst is over for all the consumer companies, because as seen in HUL numbers today, volume growth has bounced back,” said Sachin Bobade, an analyst at Dolat Capital.
HUL’s 20% increase in advertising and promotion spending is also being seen as a sign that the situation is improving. The company reported growth across segments. Home care (which includes detergents) revenue grew 13% and personal care (which includes soaps and skincare items) revenue by 8%.
“I believe by the end of December, there should be a near-normalcy and there would be some element of channel reset because modern trade is growing much faster,” said chief executive officer Sanjiv Mehta.
The company declined to specify the exact extent of recovery in rural demand and the share of its distribution that comes from modern trade.
“The main (channel) to watch is wholesale because it is a fragmented channel,” said chairman Harish Manwani. “But the good news that there is no reason to believe that the offtake in rural is down.”
HUL’s earnings before interest, tax, depreciation and amortization, an indicator of operating profitability, increased 20% to Rs1,682 crore. It posted an exceptional gain of Rs46 crore on the sale of shares in Kimberly Clark Lever Pvt. Ltd.
The operating margin rose by 1.8 percentage points on a comparable basis. HUL, however, cautioned that it was expecting raw material prices to increase in the “near term”. That could force it to raise prices, which may impact demand.