Hindustan Unilever (HUL) on Wednesday beat estimates by registering a 16% year-on-year increase in its standalone net profit at Rs 1,276 crore during the July-September quarter, on the back of volume growth which at 4% was in line with expectations and domestic consumer sales growth across segments. Revenues during the period declined by 2% y-o-y to Rs 8,199 crore, which the company said was due to the accounting impact with the implementation of goods and services tax (GST) effective July 1, 2017. The company said that according to Securities and Exchange Board of India requirements, revenue for the quarter ended September 30, 2016, was reported inclusive of excise duty. However, GST replaces excise duty and other input taxes. Hence, as per IndAS 18, the revenue for the quarter ended September 30, 2017, is reported net of GST.
“In view of the accounting impact, the reported net sales are lower by 2% during the quarter. Comparable domestic consumer sales grew by 10% during the quarter,” the company said. HUL reduced prices by 3-4% during the quarter to pass on net GST benefits, while there was an underlying volume growth of 4% registered. Ebitda (earnings before interest, tax, depreciation and amortisation) for the three months of July-September stood at Rs1,682 crore, an increase of 20% y-o-y. Comparable Ebitda margin improvement is 180 basis points over July-September 2016, due to high cost of goods sold in the base quarter. The margins have been sustained on a sequential basis due to strong savings programme. The company has also stepped up advertising and promotion spends to support innovations primarily being made on Lever Ayush.
The comparable domestic consumer sales growth and comparable Ebitda margin improvement during the quarter has been arrived by adjusting excise duty and other net input taxes from revenue in the corresponding quarter last year. The management maintained that roll-out of GST has not had too much of an impact on business. Speaking at a news conference, PB Balaji ED (finance) & CFO, said, “While GST did impact trade purchases in the early part of the quarter, subsequently things have started stabilising and we are now on recovery. The wholesale and CSD (canteen stores department) channels which were primarily impacted in the earlier part of the quarter are now gradually stabilising.” Meanwhile, consumer offtake has continued to remain stable, and recently input costs have started to inflate, Balaji said.
Sanjiv Mehta, CEO and MD, said that the “turbulence in trade pipelines” could reach near normalcy by December end, while there will be some channel reset, because modern trade is growing at a much faster pace. Meanwhile, in terms of rural offtake, Mehta said that GST did not have much impact, while granular details are awaited. HUL chairman Harish Manwani also said that rural offtake has not declined, the issue is more with the trade pipelines getting affected by the GST implementation.