Q2 Results: HUL Profit Meets Estimates Even As Volume Growth Remains Flat
HUL’s net profit rises 21.2 percent year-on-year to Rs 1,848 crore in the quarter ended September.
Hindustan Unilever Ltd.’s quarterly profit met estimates even as volume growth failed to pick up amid a consumption slowdown in India.
Net profit of India’s largest consumer goods maker rose 21.2 percent year-on-year to Rs 1,848 crore during the three-month period, according to an exchange filing. That compares with the Rs 1,788-crore consensus estimate of analysts tracked by Bloomberg. Its revenue rose 6.7 percent to Rs 9,852 crore—against the Rs 9,752-crore estimate.
The company’s volume growth stood at 5 percent during the July-September quarter, unchanged from the preceding three months.
Chairman and Managing Director Sanjiv Mehta explained that rural market growth, ordinarily at 1 - 1.5 times urban market growth, had slowed to half that in urban markets (0.5x). HUL expects demand, especially in the rural areas, to remain under pressure.
The year-on-year revenue growth in key business segments ranged from 9.5 percent in home care to 8.5 percent in foods and refreshments to 5.3 percent in personal care.
HUL’s operating income, or earnings before interest, tax, depreciation and amortisation, rose 21 percent to Rs 2,443 crore in the July-September period. That compares with the Rs 2,191-crore estimate. Operating margin expanded 290 basis points to 24.80 percent in the second quarter.
This despite price cuts across some categories. Speaking to the media after the earnings release, the company’s management said there had been pricing interventions in the popular segment of personal wash.
On Friday, BloombergQuint had reported that HUL had cut prices of several soaps and detergents brands to drive volume growth amid a slowing economy. It lowered prices in the range of 10-12 percent for products in the home and personal care category, , three distributors had told BloombergQuint.
Srinivas Phatak, chief financial officer at the company, said vegetable oil and crude prices had softened and hence the HUL could pass that on to consumers. Regarding further price cuts he said, “In food categories there has been inflation. We'll take an over all company view on further price cuts”.
Other key takeaways from the press conference:
- Outlook for demand, especially in rural India, remains challenging.
- Margin expansion was driven by improved mix, benign commodity costs.
- Beauty and personal care grew at 4 percent.
- Skin care delivered double-digit growth.
- Colour cosmetics sustained strong growth momentum.
- Water purifiers witnessed a good performance in the premium segment.
- There is some stress in liquidity in the wholesale channel.
- Company’s ad spends are up sequentially and year-on-year.
HUL also disclosed that in the September-quarter it moved to a lower corporate tax rate of 22 percent from the earlier 30 percent rate. This after the government offered domestic companies the opportunity to be taxed at a lower rate but with no exemptions or incentives. With the addition of cess and surcharge the effective new rate is approximately 25 percent. The company said its effective tax rate will be 27 percent.
The board has proposed an interim dividend of Rs 11 per share.
Shares of HUL ended 1.3 percent higher at Rs 2,031.45 apiece ahead of the earnings announcement compared to a 0.57 percent gain in the NSE Nifty FMCG Index.