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Informist, Tuesday, Jul 23, 2024

 

By Anshul Choudhary
 

MUMBAI – Hindustan Unilever Ltd managed to report a slight growth in its net profit and revenue during the June quarter amid gradual improvement in rural demand and lower prices of some commodities. Better demand from rural India helped the company perform slightly better than analysts' expectations on volume growth as well.

 

The company's net profit grew 2.7% on year to 25.38 bln rupees in Apr-Jun, slightly lower than the Street's expectation of 25.48 bln rupees. At the same time, its revenue rose 1.3% on year to 153.39 bln rupees in the June quarter, slightly higher than the Street's estimate of 152.74 bln rupees. The revenue number includes sales from products and other operating revenue.

 

The company said it continues to witness strong demand for its premium products in segments such as dishwash, skin care, and skin cleansing. These segments include products such as 'Vim', 'Dove', and 'Lakme', among others. Further, it witnessed growth in mass segments of fabric wash and hair care.

 

Overall, the company's volumes during the quarter rose 4% on year, slightly better than analysts' expectations.  Brokerages Motilal Oswal Financial Services Ltd and Prabhudas Lilladher Pvt Ltd had each expected an annual volume growth of 3%, while brokerages Emkay Global Financial Services, Nirmal Bang Institutional Equities, and Kotak Institutional Equities had expected volume growth at 2%. The volume growth was 2% in Jan-Mar.

 

The company said it saw a gradual recovery in rural demand during the quarter but pointed out that it hasn't recovered completely. It said rural demand picked up in Apr-Jun but still remained behind urban growth considering the two-year compounded annual growth rate. Several segments, such as skin care and soaps, continued to be impacted negatively by weak demand from rural India, the company said in its post-earnings presentation. These segments house brands such as 'Glow & Lovely' and 'Lifebouy'.

 

HUL's management is hopeful that rural demand will continue to improve amid a good monsoon season so far and announcements in the Budget today, as per comments in the press meet. The Budget should give impetus to rural and urban consumption, the management said. 

 

In Apr-Jun, the company benefited from lower commodity prices, helping it expand gross and operating margins. HUL's net material inflation has been negative since Apr-Jun last year, the company said in a virtual press meet. This fall in prices of some commodities have led to an easing in competition from smaller players as seen in previous quarters, the company said.

 

During the quarter, it witnessed a 15% on-year fall in soda ash prices, a similar decline in skimmed milk powder prices, while palm oil prices were flat. However, tea prices were 15% higher on year.

 

Overall, the company's expenses rose 1.6% on year to 121.16 bln rupees with its material cost declining nearly 2%. The material cost includes cost of material consumed, purchase of stock-in-trade, and changes in inventory. This aided margins during the quarter with the company's gross margin expanding 170 basis points on year to 50.9%. Its earnings before interest, taxes, depreciation, and amortisation margin rose 20 bps to 23.8%. Its EBITDA grew 2% on year to 36.06 bln rupees, higher than analysts' expectations of 35.85 bln rupees.

 

Going forward, the company expects EBITDA margins to remain at current levels. Also, they do not expect any significant rise in product prices if commodity prices remain unchanged.

 

SEGMENTAL PERFORMANCE

Hindustan Unilever's volume growth was led by its largest business of home care, which accounts for 37% of overall revenues. The segment witnessed underlying volume growth in high single digits on a sales growth of 4% in Apr-Jun. Its fabric wash segment saw growth across both mass and premium products, while its growth in household care products was led by the premium dishwash portfolio. This segment includes brands such as 'Rin', 'Surf Excel', and 'Vim'.

 

The company provided numbers for beauty and personal care businesses separately for this quarter. Within its beauty and wellbeing portfolio, hair care products witnessed growth in mass as well as premium segments. At the same time, skin care and colour cosmetics targeted at mass segments witnessed a volume decline even though premium products continued to report growth. Overall, the beauty and wellbeing segment reported underlying volume growth in mid-single digits on a sales growth of 3%.

 

Its personal care business, which includes soaps and toothpastes, saw weak sales due to price cuts taken in soaps, but volumes during the quarter saw a turnaround. It witnessed an underlying volume growth in low single digits, compared to a decline in volumes in the previous quarter. The volume growth was aided by price cuts, the company said.

 

The company's food and refreshment portfolio's performance was muted, with flat volume growth and sales rising a mere 1%. The harsh summer impacted sales in this segment, the company said. Input prices of tea remains a concern for the company, it said, as tea crops were impacted by the hot summer, adding to costs during the quarter. However, HUL managed to gain market share in tea in terms of value and volume, the management said.

 

Today, shares of Hindustan Unilever closed 1.1% higher at 2,766.35 rupees on the National Stock Exchange. The company reported its earnings after market hours.  End

 

Edited by Tanima Banerjee

 

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