HUL margin narrows even as demand improves

Hindustan Unilever Ltd.’s revenues and volumes rose in the December quarter, even as its margins narrowed on higher expenses and a labour code hit. India’s largest consumer goods maker said it will focus on “fewer, bigger” bets to ramp up its fast-growing premium portfolio, anticipating stronger growth after a challenging 2025-26.

The company’s revenue grew 6% year-on-year to ₹16,235 crore in the quarter ended December, according to its exchange filings. That compares with an average revenue estimate of ₹16,156 crore from 19 analysts surveyed by Bloomberg.

Underlying volumes grew 4% year-on-year compared with flat growth in the September quarter.

Overall, macro conditions, consumer sentiment and demand are “indeed improving”, said chief executive officer (CEO) Priya Nair in a press briefing after the December quarter results. “The bigger improvement is in rural, and rural continues to outperform urban, but we're seeing both urban and rural growth, stable and strong.”

Profit after tax and before exceptional items grew 1% over a year earlier to ₹2,562 crore against the estimated ₹2597 crore. Reported profit after tax for the company surged 121% to ₹6,603 crore on a one-time gain from the spinoff ice cream maker Kwality Wall's (India) Ltd. during the quarter.

However, its Ebitda (operating) margin narrowed 70 basis points to 23.3%. Ebitda stands for earnings before interest, depreciation and amortization.

Expenses rose 6.3% year-on-year, partly due to higher employee benefits under the new labour codes, adding to pressure on margins.

“HUL’s revenues grew due to a good winter season, which was expected,” said Sachin Bobade, director of research at brokerage firm Dolat Capital. “However, the company’s margins are under pressure, likely due to rising competition from independent, smaller brands in premium personal care.”

Shares of HUL fell as much as 4.35% after the results were announced, but pared some losses to close 2.27% lower at ₹2,407 apiece on Thursday compared with a 0.57% decline in the benchmark Nifty 50 index.

Beauty & wellbeing delivered 6% underlying sales growth, with a low-single-digit underlying volume growth. Home care sales rose 3%, while volumes grew in mid-single-digit as the segment continues to be impacted by pricing actions taken during the year. Hair care reported volume-led double-digit growth, while the skin care segment reported a strong performance with the winter portfolio. However, that was offset by subdued performance in the non-winter portfolio. Health & Wellbeing recorded a high double-digit growth, while the personal care segment reported a 6% sales growth.

GST cut boost short-lived

According to Niranjan Gupta, chief financial officer of HUL, the company continues to “double down on fewer bigger bets, leveraging our strength to scale brands and lead category creation”. “Coupled with positive, conducive consumption environment, we expect growth in FY27 to be better than FY26,” Gupta said.

A post-pandemic K-shaped recovery in the economy has been hurting discretionary spending by middle- and working-class homes, especially in urban India, leading to several quarters of a consumer slowdown. Last year's cuts in goods and services tax rates on packaged staples and some personal care goods aimed at stimulating this demand. FMCG companies passed on the benefits of these cuts to consumers via price cuts and increases in grammage in September and October last year. However, that disrupted consumer goods inventory, hurting sales growth in the September quarter.

Gupta said the consumption boost from the September GST rate cuts was short-lived. “In the short-term, [GST rate cuts] do not lead to an immediate bump up,” Gupta said. “But in the long-term… it will definitely lead to an improvement in consumption.”

Oziva takeover, Q-comm engine

HUL’s management has emphasized the company’s focus on direct-to-consumer and quick commerce businesses. Oziva has almost a ₹500 crore annual run rate (ARR), according to CEO Nair. Acquired portfolios like Oziva and Minimalist combined are currently at an annual revenue run rate of ₹1,100 crore, she added. This has nudged the company to acquire the remaining 49% stake in Oziva for ₹824 crore.

“Health & Wellbeing is an important growth vector for us, driven by rising consumer interest in everyday wellness. By taking full ownership of OZiva, we are doubling down on this exciting space to unlock the next phase of growth,” Nair said in a separate statement. “Our decisions today reflect our intent of fewer, bigger bets where we can leverage HUL’s strengths in science, distribution and market development to scale purpose-led brands.”

Quick commerce is currently 3% of HUL’s overall sales, Nair said. Revenue from operations for the nine months ended December stood at ₹45,716, up 2% over a year earlier.

As the company's fastest-growing channel, HUL plans to double down on quick commerce with fresh investments, she said. “By setting up a dedicated organisation and deploying advanced supply chain capabilities, we are building a bespoke operating model that enables us to lead growth in this high-growing channel,” Gupta said.

HUL separated its ice cream division, transferring it to Kwality Wall's (India) Ltd., in the quarter, which is expected to be listed soon. The company also disinvested its 19.8% stake in Wellbeing Nutrition for ₹307 crore in the quarter. Pharmaceutical major USV announced it was acquiring a 79% stake in Wellbeing Nutrition.