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Informist, Wednesday, Jan. 22, 2025

 

--HUL: Soda ash inflation remains largely benign 

--CONTEXT: Comments by HUL management in post-earnings call with analysts 

--HUL: Home care segment growth ahead of rest of co's businesses 

--HUL: Eye 900 bps portfolio shift towards premium through Minimalist brand 

--HUL: Expect improved rabi crop output to boost rural demand 

--HUL: Don't believe consumption trends will get worse from here 

--HUL: Impact of small pack negative mix should correct itself in qtr or so

 

By Anjana Therese Antony and Steffy Maria Paul

 

MUMBAI – The acquisition of haircare and skin products brand Minimalist would play a key role in a 900-basis-point shift towards a premium portfolio in the next few years, Hindustan Unilever Ltd. said. "We are confident that with Minimalist, with our extension of portfolio within Ponds and Lacme, further scaling our brand Simple Love Beauty Planet...many such actions put together, we will be able to drive the 900-bps portfolio shift towards premium," the company's management said in a post-earnings call with analysts Wednesday. This will close the gap within the premium segment of beauty and well-being, it added.

 

The Mumbai-based company Wednesday said it would buy 90.5% stake in Uprising Science, which owns Minimalist, for a cash consideration of INR 26.7 billion at a pre-money enterprise valuation of INR 29.55 billion. The stake acquisition is expected to be completed by the June quarter of this year. Once the transaction is completed, the company will buy the remaining 9.5% stake in about two years, it said. This premium beauty brand, founded in 2020, has an annual revenue run rate of over INR 5 billion and the business has been profitable since its inception, the company said in a post-earnings investor presentation. "Minimalist has a very strong play online and in e-commerce...apart from direct-to-consumer sales," the management said, adding that it will take the brand offline over the course of time. 

 

Uprising Science will become a part of Hindustan Unilever's beauty and well-being operations, which was the third-highest revenue generator for the company during the December quarter. Revenue from the segment was INR 34.38 billion in Oct-Dec, up 1.4% on year. 

 

When it comes to its core business, home care, Hindustan Unilever said the segment's growth was ahead of the rest of its operations. Revenue from this vertical, which accounts for 37% of the overall sales, grew 5.4% from a year ago to INR 57.42 billion. "All levers of growth in home care are firing...this is a very resilient category in time of inflation or deflation, being an essential product," the company said. 

 

Commenting on the consumption, the fast-moving consumer goods giant said it does not see the trend getting worse from here. It believes that overall moderation in commodity inflation will support the FMCG sector and hence, the recovery of overall consumption. "We are hopeful that we should see better times, but the pace of recovery will be determined with employment, real wage growth, and food inflation," it said. 

 

The company strongly believes that rural demand will be stronger than in urban areas, which is currently under pressure. Earlier, weak demand from rural areas was a major headache for FMCG players in India, along with muted volume growth and a below-average monsoon. However, it started to recover in recent times, when urban demand has started to weaken. As food inflation comes down, it will help urban markets, the company said. It also expects an improvement in kharif and rabi output to help boost rural demand trends.

 

The FMCG company said prices of key raw materials such as tea and crude palm oil remain inflated on year and crude oil continues to deflate, while soda ash inflation is largely benign. Crude oil prices fell 11% on year and soda ash declined 3%, while that of palm oil surged 40% and tea rose 24%. 

 

With respect to the small packs mix, the company said its negative impact will be corrected by itself in a quarter or so. "At this point of time, we have seen a higher negative mix effect than we have seen in other quarters," the management said. 

 

For the quarter ended September, Hindustan Unilever posted a net profit of INR 30.01 billion on revenue of INR 154.08 billion, beating the Street's estimates, thanks to a one-time gain of INR 5.7 billion from the divestment of the water purification business. Had it not been for the divestment-related revenue, the company's profit would have been INR 24.3 billion, falling short of analysts' view of INR 25.7 billion.  

 

The company released its quarterly results after market hours Wednesday. Ahead of the outcome, its shares closed 0.1% higher at INR 2,342.95 on the National Stock Exchange.  End

 

Edited by Avishek Dutta

 

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