HUL Q3 Results Review - Operating Performance Inline, Royalty Increase Not A Concern: Motilal Oswal

Motilal Oswal Report

Hindustan Unilever Ltd.’s operating performance in Q3 FY23 was inline with expectations. Profit before tax and profit after tax beat our estimates by ~8%, driven by higher-than-expected other income.

On the effective 80 basis points increase in royalty (effective for the next five years) from 2.65% to 3.45%, we are not particularly perturbed if HUL receives commensurate benefits from the parent. The decision also requires a majority of minority shareholders’ approval and is not a CG risk in our view.

Even at 3.45% royalty by CY27, HUL’s royalty rate will be well below that of Nestle India Ltd./Colgate Palmolive India Ltd. /Procter and Gamble Hygiene and Healthcare Ltd. (close to ~5%).

While rural recovery and commodity cost declines are taking longer than expected, management believes that the worst is over and HUL will be a clear beneficiary on both fronts.

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