HUL’s chief financial officer Srinivas Phatak said that while policy initiatives taken by government augur well, income transference to rural area will be key imperative.
A lower corporate tax rate and benign commodity prices drove Hindustan Unilever’s (HUL) second quarter performance, as the consumer goods major beat the Street’s expectations on all fronts. The country’s largest consumer company reported a 21% growth in its net profit (standalone) on a y-o-y basis to `1,848 crore, while the net sales for the July-September 2019 period were higher by over 6% y-o-y at `9,708 crore. However, the management believes that demand outlook remains challenging and will continue to be so for sometime into the future. During the second quarter, HUL maintained its underlying volume growth at 5% in line with previous quarter, which is ahead of the 3-4% that analysts had pencilled in for the quarter.
HUL chairman and managing director Sanjiv Mehta, “The near-term outlook for demand, especially in rural India, remains challenging.” The slowdown in rural India was more pronounced for the company, as rural demand slowed to 0.5x of urban growth, versus 1.2x-1.5x seen during good growth periods for the FMCG sector. However, on a year-on-year basis, the volume growth has halved, impacted by sustained slowdown in consumption. Domestic consumer growth stood at 7% during the quarter. The home-care segment witnessed a sales growth of 10%, food and refreshments came in at 8% and beauty and personal care at 4%. For fiscal 2020, HUL’s tax rate is down to 27% from 30.5% in the previous year.
HUL’s operating income (earnings before interest, tax, depreciation and amortization) grew by 21% y-o-y to `2,443 crore. The operating margins expanded by 310 basis points to 25.1% versus 22% in Q2FY19. The margin expansion was driven by improved mix, benign commodity price movement in its large segments and savings agenda. After adjusting for accounting impact of Ind AS 116, Ebitda expanded by 16%. Segmental margins for beauty & personal care was at 29%, home-care (18%) and foods & refreshments (16%).
HUL’s chief financial officer Srinivas Phatak said that while policy initiatives taken by government augur well, income transference to rural area will be key imperative. “Commodities and currencies will continue to be volatile,” he added. He added that during the quarter, the company undertook a 4-6% reduction in prices in its cleansing portfolio, with reduction in Lux and Lifebuoy prices, and will now do so in Dove and Pears prices too. “In the whole portfolio we will do price reduction of about 6%, part of which came in the September quarter and part will be in the December quarter,” Phatak said. He explained that price cuts in the soaps category was linked to benign commodity prices.
On a year-on-year basis, the vegetable oil basket is lower anywhere between 15-20% and projected to remain soft for the next 6-9 months.