FMCG major Hindustan Unilever (HUL) reported a 12% y-o-y increase in standalone net profits for the quarter ended December at Rs 2,505 crore on the back of improved sales. The earnings were marginally ahead of Bloomberg’s estimats of Rs 2,488.30 crore.
Revenues from operations rose 16% y-o-y to Rs 14,986 crore as the company’s volumes improved 5% during the quarter. The company also took a price hike of around 11% on its products during the period. Analysts estimated revenue to be at Rs 14,935.20 crore.
On Thursday, HUL share price closed 1.61% lower at Rs 2,643.05 on the NSE.
HUL said that its growth was ahead of the market with more than 75% of the businesses gaining market shares. Operating margin, however, declined 180 basis points to 23.6% because of high commodity inflation compared to last year. However, margins improved quarter-on-quarter by 30 bps because of inflation moderating compared to the previous quarter.
“The unprecedented inflation that we have witnessed this year is gradually moderating from its peak. Consumer price inflation has also softened. Having said that, commodities remain elevated when compared with long-term averages,” said Ritesh Tiwari, chief financial officer at HUL, during the post earnings conference call.
During the December quarter, FMCG market grew 8%, higher than the September quarter, Tiwari said, adding that the growth was largely price led while volumes declined. Although the decline in the December quarter was lower than in the previous quarter, he added.
Putting more light on the overall FMCG market, Sanjiv Mehta, MD of HUL, said that moving annual total till the September quarter shows a 6% value growth and -6% volume growth. However, in the December quarter, it has moved to 8% value growth and the volume growth has moved from -6% to -4%.
Even in the rural market, Mehta said that numbers have started improving. But he added that there was still a long way to go. “With lower inflation, strong winter crops sowing and signs of pick up in farm incomes, it is likely that the rural slowdown is bottoming out. The next few months will give further certainty on this,” Tiwari added.
HUL said it is cautiously optimistic on its outlook for the sector in the near term. The net material inflation in the December quarter was down to 18% from 22% in the September quarter.
“If commodities remain where they are, we believe worst of inflation is behind us. This should give gradual recovery in consumer demand. But inflation being still high y-o-y, we expect growth to be price led,” Tiwari said.
During Q3, HUL’s home care segment delivered a 32% revenue growth and double-digit volume jump. Beauty and personal care grew 10%. Foods and refreshment delivered a 7% growth led by robust performance in foods, coffee and ice cream.
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The HUL board also approved the proposal to enter a new arrangement wherein the company will now be paying royalty and central services fees to Unilever Group at 3.45% of turnover, up from 2.65% in FY22. This increase will be effected in a staggered manner over a period of 3 years.
In 2013, HUL had entered an arrangement with Unilever to pay 2.65% royalty and central services fees for a period of 10 years.
This granted HUL the right to use Unilever-owned trademarks, technology, corporate logo and gave access to central services provided by the Unilever group. Mehta said that there will be a 45 bps increase in royalty and service fee in 2023, 25 bps in 2024 and 10 bps later on.
“It goes as a cost to our P&L. But we also get equivalent value from Unilever in form of better products and innovation. When we last increased our royalty fee to Unilever in 2013, we improved our operating margins by nearly 1,000 bps. We would ensure that we get value for the money we pay to Unilever,” Mehta said.