HUL profit up 8.7% in September quarter on improved demand; says worst may be over

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October 21, 2020 5:00 AM

The company management said strong savings funnel, judicious and calibrated pricing in tea, and synergies in nutrition enabled the company to successfully manage headwinds of commodity inflation and adverse mix.

Consequently, the company beat Street expectations on all fronts.Consequently, the company beat Street expectations on all fronts.

Hindustan Unilever (HUL) on Tuesday reported healthy growth in revenues and profit during the July-September quarter on the back of a pick-up in demand.

The impact of Covid-19 seems to be waning for the country’s largest consumer goods major with consumption picking up across categories, barring discretionary spends.

While the company remains “cautiously optimistic” on demand recovery in urban areas, rural demand is showing signs of resilience. Its volume growth came back to the positive trajectory of 3%, led by a 1% growth in volume and 2% price growth. This is a significant improvement from the 7% and 9% decline witnessed in the June and March quarters, respectively.

Consequently, the company beat Street expectations on all fronts. It reported an 8.7% year-on-year (y-o-y) increase in net profit at Rs 2,009 crore during the quarter. Bloomberg consensus estimates had projected Rs 1,914.63-crore net profit. The company’s revenue from operations surged a good 16% y-o-y at Rs 11,442 crore against analyst expectations of `11,138.35 crore. This includes the recently acquired GSK portfolio by the company.

HUL chairman and MD Sanjiv Mehta said there is a clear improvement between the June and September quarters across the company’s portfolio, and this momentum will improve more if the pandemic impact starts to go down further. “The categories which are not linked to people stepping out, which is the health, hygiene and nutrition portfolio, have already grown in double digits. Once people start stepping out, even discretionary and out-of-home categories will start getting into the normal growth rhythm,” he said, adding: “As things stand and if there are no further hard lockdowns, we believe the worst is behind us.”

Health, hygiene and nutrition, which forms 80% of HUL’s business, has grown 10% in the July-September period. Discretionary and out-of-home segments, which had witnessed negative growth of 45% and nearly 70%, respectively, in the June quarter, have contracted by 25% in the September quarter.

HUL CFO Srinivas Phatak said: “Progressively, we are seeing an improvement across all aspects with clear acceleration in health, hygiene and nutrition.” However, ice-cream and food solutions business continue to remain impacted, though the losses have come down, he added.

The company management said strong savings funnel, judicious and calibrated pricing in tea, and synergies in nutrition enabled the company to successfully manage headwinds of commodity inflation and adverse mix. Consequently, its Ebitda increased 17% y-o-y at Rs 2,869 crore. The company was able to maintain its margins, which rose by 30 basis points y-o-y to 25%.

The management commentary is positive as they said the worst seems to be behind and the positive volume growth momentum is likely to continue. Rural demand, which was muted before the pandemic struck, has been showing good growth, and more importantly, it is resilient. However, urban demand still remains uncertain.

“Before the pandemic, the rural growths were rather muted. However, impact of the steps taken by the government and a good harvest is clearly visible in the fact that rural consumption has remained resilient. However, urban is impacted by confined living. Once people start moving out, the discretionary categories will get a further impetus. However, there are many variables still at play,” Mehta said.

He further said the trade pipelines were much more normal in this quarter.

Phatak said the service levels were back to pre-Covid and all factories were fully operational. “The worst is behind us, the business is clearly picking up momentum and there is cautious optimism going forward,” he said.

He added that the inflationary pressures are likely to continue in some categories and gross margin will remain under pressure in the short term as a consequence of the way the company will look at its pricing. However, in the current times, the company will focus on competitive-led volume growth, on absolute profits rather than margin percentages, and will keep razor-sharp focus on cash delivery, he added.

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