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Informist, Wednesday, Jan. 22, 2025
By Avishek Rakshit
KOLKATA – Despite tepid market conditions, divestment of Hindustan Unilever Ltd.'s water purification business, under the brand name Pureit, helped it beat the Street consensus on profit for the December quarter. The country's largest consumer goods company made a one-time net gain of INR 5.7 billion from the divestment, which amplified net profit to INR 30.0 billion.
Discounting the one-time gain, HUL's net profit was INR 24.3 billion and fell short of the Street's estimate of INR 25.7 billion. However, it is not clear if sector analysts had taken into consideration this one-time gain when estimating the company's profit for Oct-Dec. Effectively, HUL reported a 19.1% on-year growth in its profit after tax to INR 30.0 billion during Oct-Dec.
Measures like control over advertising expenses, price hikes, introduction of new product packs, and optimal performance of the home care business did boost profit, but revenue growth was muted as was sales volume.
HUL reported a revenue of INR 156.1 billion during Oct-Dec, which is a modest 1.4% on-year increase from INR 154.1 billion in the year-ago quarter. It was also short of the Street's projection of a revenue of INR 156.1 billion. The revenue growth, under conditions of flat sales volume, was primarily due to price hikes which the company has been taking from the past few quarters.
Although HUL's volume growth, including the impact of mix of turnover realisation of products sold, commonly referred to as underlying volume growth in the consumer goods industry, was flat, the underlying sales growth, which refers to the increase in turnover for the period, excluding any change in turnover resulting from acquisitions and disposals, was up by 2%.
"FMCG (fast moving consumer goods') demand trends remained subdued with continued moderation in urban growth while rural sustained its gradual recovery. In this operating context, we delivered competitive growth by driving unmissable brand superiority, investing behind brands and capabilities whilst maintaining healthy margins," Chief Executive Officer and Managing Director, Rohit Jawa, said in a company issued statement.
In the statement, HUL said that the underlying sales growth in its home care portfolio – the major revenue and profit earner for the company accounting for 37% of its Oct-Dec revenues and 32% of its pre-tax profits, grew by 6% with high-single digit underlying volume growth, particularly in fabric wash, dish wash, and other household care items. Revenue from this segment was up 5.4% on year to INR 57.4 billion, and the pre-tax profit rose by 9% to INR 10.5 billion.
However, the heat of muted consumer demand was felt in other three major categories.
The foods vertical, the second-most important revenue generator for HUL comprising 24% of the Oct-Dec sales, saw flat revenue of INR 37.5 billion against INR 37.3 billion in the year-ago quarter. The pre-tax profit, however, increased by 6.2% on year to INR 7.6 billion mainly on account of price hikes amid decline in sales volume.
Although HUL maintained its market leadership in tea retailing, sales grew in low-single digit, led by premium brands such as 3 Roses and Taj Mahal. Tea procurement costs, however, shot up considerably by 24% on year. Coffee sales, after rise in prices due to high commodity costs, grew in double digits. However, nutrition drinks – one of the several discretionary consumer products in HUL's kitty, felt the heat of subdued demand.
In line with the ongoing trends in the consumer goods industry, small packs sold more than the larger ones that had a direct impact on revenues.
The third-most important business vertical – beauty and wellbeing – comprising 22% of HUL's sales, and 31% of its pre-tax profit, saw flat profit growth and a marginal 1.4% sales growth during Oct-Dec. The underlying volume growth declined by low single digit. In a statement, the company said that its hair care portfolio delivered mid-single digit competitive volume growth, driven by strong growth in Dove, Tresemme and Clinic Plus brands. Performance was broad-based across sachets and formats of the future, HUL said.
A decline in the hygiene portfolio of skin cleansing products resulted in revenues from personal care products falling by nearly 3% to INR 22.5 billion during Oct-Dec. But the pre-tax profit increased by 8.5% to nearly INR 4 billion. Sales volume declined by mid single digit.
The impact on HUL's profit could have been higher had the company not curtailed its spends on advertising and promotions, which declined by nearly 8% to INR 14.7 billion. Although raw material costs like that of palm oil continued to remain high and was up by 40% on year and 22% sequentially, and tea cost rose by 24% on year, HUL's total raw material costs declined by 6.8% to INR 42.9 billion. However, other costs rose, eventually resulting in total costs increasing by 2% to INR 122.5 billion.
As a result, the company's earnings before interest, tax, depreciation and amortisation remained flat at INR 35.7 billion during Oct-Dec as against INR 35.4 in the year-ago quarter, but EBITDA margins fell by 20 basis points on year to 23.5%. Gross margins also fell by 70 basis points to 50%.
The company's margins from the homecare segment declined during Oct-Dec to 18% as against 19% during Jul-Sept, and margins from the beauty and wellbeing segment fell to 29% as against 34% during the quarter ended Sept. However, margins from the foods segment increased to 20% during the December quarter as against 18% in Jul-Sept.
"While we keep a close watch on the pace of recovery and the broader economic outlook in the short term, we remain confident of the medium- to long-term opportunity in the Indian FMCG sector and HUL's ability to grow competitively," Jawa said.
In a presentation to investors submitted on the bourses, HUL said that it expects the ongoing sluggish demand to continue in Jan-Mar as well, but expects low-single digit price growth if commodity prices remain at current levels. The company expects the EBITDA to be at the lower end of 23-24%.
Wednesday, shares of HUL closed 0.1% higher at INR 2,342.95 on the National Stock Exchange. The company reported its earnings after market hours. End
Edited by Deepshikha Bhardwaj
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