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Business News/ Companies / Company Results/  HUL posts 8% rise in Q1 net profit; volumes still muted

HUL posts 8% rise in Q1 net profit; volumes still muted

Net profit climbs to ₹2,472 crore; company cautious about near-term operating environment

The FMCG market is recovering gradually, although the operating environment remains challenging, said HUL chief executive and managing director Rohit Jawa.Premium
The FMCG market is recovering gradually, although the operating environment remains challenging, said HUL chief executive and managing director Rohit Jawa.

Hindustan Unilever Ltd (HUL), the largest household goods maker in India, reported an 8% increase in profit in the June quarter as it intensified advertising and marketing expenses to tackle rising competition. However, the results slightly missed street expectations.

Net profit climbed to Rs2,472 crore for the three months ended 30 June from Rs2,289 crore a year ago, the company said in a statement to the stock exchanges on Thursday.

Standalone sales rose 6.1% to Rs15,148 crore from Rs14,272 crore a year earlier; advertising and promotion spending during the quarter was up 11.52%. A Bloomberg survey of analysts expected it to report profit of Rs2,624.5 crore.

HUL’s gross margin expanded by 256 basis points (bps) from a year earlier and 120 bps sequentially to 49.9%. The company posted volume growth of 3%, against 4% in the March quarter. A basis point is one-hundredth of a percentage point.

Overall, the company sounded caution for the near-term operating environment, which “continued to be volatile with weather-related risks". HUL will remain “watchful" on the progress of the monsoon in the rest of the country and the impact of El Niño on rural demand.

The firm saw a “gradual" recovery in FMCG volumes, which grew by an estimated 5% during the June quarter, HUL said citing data from market researcher NielsenIQ. Urban regions continued to lead sales growth, while rural volumes returned to positive territory. However, on a two-year (compound annual growth rate) basis, overall FMCG volumes remained flat.

“FMCG market is recovering gradually, although the operating environment remains challenging. In this context, we have delivered a resilient and competitive performance while stepping up our Ebitda margin. In the near term, FMCG industry will continue to witness rebalancing of price-volume growth equation as well as a gradual recovery in consumer demand," Rohit Jawa, chief executive and managing director, HUL, told the media in his first earnings announcement after assuming office. Ebitda is short for earnings before interest, taxes, depreciation and amortization.

Jawa said within the next two quarters, price growth will trail off, giving way to volume-led growth. “Eventually, the trend will stabilize…If you look back at our record, we’ve grown two-thirds by volume and one-third in price. We are expecting to return back to that kind of stable trend. The near-term intention is to drive competitive volume growth."

The firm’s media spends are back to nearly 2019 levels, said HUL’s chief financial officer Ritesh Tiwari.

“Media deployment, which saw a steep reduction during the high inflationary period, has started normalizing, and it’s almost back to the 2019 levels. We’re also witnessing a resurgence of small and regional players, many of whom had vacated the market during the peak of inflation," said Tiwari. Citing market data, he said small FMCG players grew ahead of larger peers in the June quarter.

During the quarter, HUL’s Ebitda margin was up 40 bps from a year ago to 23.6%, while advertising and promotional expenses grew 11.52% to 10% of its June quarter sales, signalling an uptick from the previous quarter.

HUL’s performance is seen as a proxy for the broader consumer sentiment in India. Analysts said while volumes missed the street estimate, rural markets saw volume growth albeit at a low base. “The quarter witnessed margin improvement sequentially with inflation moderating for most commodities (barring tea and coffee) which was reinvested in A&P to drive demand. Pricing element has reduced to 3% and growth will likely be volume-led," said Amnish Aggarwal, head of research, Prabhudas Lilladher Pvt. Ltd.

The positive was HUL’s commentary on commodity inflation remaining stable, with prices of crude, soda ash and palm oil seeing a downward trend. However, prices of tea, coffee and skimmed milk we’re still high, the company said.

The company’s home care business reported a 10% year-on-year revenue growth and mid-single-digit volume growth. Meanwhile, the beauty and personal care segment delivered 4% revenue growth with mid-single-digit volume growth. Further price reductions were taken in the soaps portfolio in this quarter.

However, foods and refreshment revenue grew 5% with nearly flat underlying volume growth.

“Tea saw modest volume-led growth as the category continued to witness consumers downgrading due to higher inflation in premium teas vis-à-vis loose tea. Ice cream grew in mid-single digits on an exceptionally high base. Unseasonal rains impacted ice cream consumption in the quarter," the company said in its earnings update.

Tiwari said inflation will need to temper for rural demand to make a meaningful recovery. Rural consumers in general are more susceptible to the adverse effects of inflation. “Weather related risk and volatility is what we will have to wait and watch. The impact of El Niño and its impact on crop output, that is yet to be seen," he said. However, government investment in rural is a key positive. While signs of rural recovery are positive, the company continues to “wait and watch".

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Suneera Tandon
Suneera Tandon is a New Delhi based reporter covering consumer goods for Mint. Suneera reports on fast moving consumer goods makers, retailers as well as other consumer-facing businesses such as restaurants and malls. She is deeply interested in what consumers across urban and rural India buy, wear and eat. Suneera holds a masters degree in English Literature from the University of Delhi.
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Published: 20 Jul 2023, 11:32 PM IST
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