HUL’s net profit up 28% in Q3, signals consumer demand recovery
Mumbai: Hindustan Unilever Ltd (HUL) on Wednesday reported strong quarterly sales and profit growth, signalling that consumer demand is recovering.
HUL’s net profit rose 28% in the three months ended December to Rs1,326 crore, beating the Rs1,156 crore profit estimate of analysts surveyed by Bloomberg.
Reported net sales rose 2.5% to Rs8,323 crore. On a comparable basis (after accounting for the effects of the goods and services tax, or GST, implemented from 1 July), revenues at the country’s largest packaged consumer goods maker grew 17% from a year ago. In the home care segment, its second largest business by revenue, comparable growth topped at 20%.
“Trade conditions are normalizing,” said chief financial officer Srinivas Phatak. “We had said in September that after initial turbulence (from GST), the trade had started to improve. In December (quarter), I think it has improved. There is a gradual improvement in demand and it is coming through all our categories.”
HUL reported volume growth of 11%. However, that comes on top of a 4% decline in the December 2016 quarter as the invalidation of high-value notes hit consumer spending. Still, adjusting for the note ban and the effects of GST, the numbers indicate a demand recovery, said analysts.
“These results were not spectacular but they were ahead of expectations because 5% growth in volume for HUL is very good given the large base they are coming from,” said Sachin Bobade, senior equities analyst at brokerage firm Dolat Capital.
Growth was broad-based across segments. On a like-to-like basis, home care sales grew 20% and personal care by 17%. Refreshment and foods sales also grew by 13% and 18%, respectively.
HUL’s management was cautiously optimistic about demand growth.
“You had demonetisation, then pipeline changes, then you had GST. It is very difficult to decipher a trend when the markets have been so turbulent. You will have to wait another quarter or two for a trend,” said Sanjiv Mehta, chief executive officer. “The trade has been stabilizing, there have been relatively better monsoons compared to financial year 2015-16, and with the government’s thrust of putting more money in the hands of farmers, I believe it should augur well, but let us see how it goes in the future.”
In a presentation to investors uploaded on its website, the company said that it expected the “gradual improvement in demand to sustain” and warned about “further inflation in input costs”.
HUL’s earnings before interest, taxes, depreciation and amortization (Ebitda) grew 24% to Rs1,680 crore. Operating margin widened by 1.1 percentage points.
The company’s management said that rural growth recovery was stronger, but this was primarily because it was affected worse than urban sales during the note ban period. The company declined to share growth rates for rural markets but said that recovery is happening in both urban and rural markets.
HUL also made a one-time provision of Rs119 crore to be paid to the government because it could not immediately pass on the benefit of lower GST rates for some categories announced on 15 November.
“Actions were initiated immediately, but it takes time. We always have pipeline stocks,” said Phatak. The company offered the total Rs119 crore to the Central Board of Excise and Customs (CBEC), suggesting that it be deposited in a consumer welfare fund, said Mehta. But since the government doesn’t have such a fund, HUL is awaiting instructions on how to pass it on to the government, he said.
Shares of HUL fell 0.68% to Rs1,371.85 on the BSE, while the exchange’s benchmark Sensex rose to an all-time high of 35,081.82 points, gaining 0.89% on Wednesday. Results were announced after the markets closed.
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