HUL stands out with its robust performance in a volatile market | The Financial Express

HUL stands out with its robust performance in a volatile market

The company is expected to report further improvement in the earnings in the second half backed by softening of commodity prices like palm oil, a low base and expectations of a pick up in rural consumption, according to analysts at Jefferies.

HUL stands out with its robust performance in a volatile market
India’s largest FMCG firm has also outpaced its peers and the Indian arms of multinational consumer companies Nestle India and Procter & Gamble.

Hindustan Unilever (HUL), the Indian arm of FMCG major Unilever, has outdone the performance of its parent, and is set to overtake the US business of the Anglo-Dutch consumer multinational company, to become the largest by value.

India’s largest FMCG firm has also outpaced its peers and the Indian arms of multinational consumer companies Nestle India and Procter & Gamble.

For the quarter ended June 30, 2022, HUL posted operating margins of 23.2%, which though lower by 110 basis points on a year-on-year basis, was still higher than Nestle India’s margin of 21% and much ahead of 15.5% reported by Procter & Gamble Hygiene and Health Care.

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While FMCG companies across the globe are battling with uncertain and volatile commodity prices, HUL seems to have braced the storm better than its parent. The volume growth of HUL, for instance, despite sharp rise in commodity prices and drop in rural demand, has remained in high single digit and at 6% in the June quarter. However, Unilever reported a decline of 1.6% in volume in the same quarter.

In terms of revenue, too, while Unilever’s sales growth has been 8.8%, HUL had reported a robust 19% y-o-y growth in the turnover in April-June 2022. The company’s market capitalisation was at `6.26 trillion as on October 4, 2022.

The company’s share price at `2,667.35 closed up 1.72% on Tuesday, on the BSE, and is hovering close to its record `2,800 levels seen last year.

According to analysts, the premiumisation agenda of HUL has been working well for the company, and has also helped it outperform the market. One of the reasons of the superior performance, as Manoj Menon, head of research at ICICI Securities said in a recent report, is its continued work on category development — both formats and premiumisation.

The company is expected to report further improvement in the earnings in the second half backed by softening of commodity prices like palm oil, a low base and expectations of a pick up in rural consumption, according to analysts at Jefferies.

In July, Unilever had also pointed out that its sales grew strongly in the priority market of India in the first half of 2022. India comes under the Asia/AMET/RUB (Africa, Middle East, Turkey; Russia, Ukraine, Belarus) market region of Unilever, which reported underlying sales growth of 9% to 13.7 billion euros.

However, contrary to the positive sentiment in the region, the overall commentary from Unilever has not been encouraging. The FMCG major changed its guidance for underlying sales growth. “Our guidance for underlying sales growth in 2022 was previously at the top end of a range of 4.5% to 6.5%. We now expect underlying sales growth to be above that range, driven by price with some further pressure on volume,” the company said.

Unilever also cut its operating margin outlook to “about flat” from “slightly up” earlier and flagged greater uncertainty surrounding that forecast against the backdrop of rising commodity prices — from crude oil to palm.

The parent, Unilever, has also been under the pump for the last few quarters with investors criticising the company’s focus on sustainability more than its financial performance. The failed bid for GSK’s consumer health division has irked investors further.

Following the uproar from investors on the lacklustre performance of the company, the chief executive officer of Unilever Plc, Alan Jope, also announced he would retire at the end of 2023.

On the contrary, HUL has been given a thumbs-up for its performance by the markets. Martin Deboo, consumer goods analyst at Jefferies, was quoted by Financial Times as saying that Hindustan is one of Unilever’s best-performing emerging market businesses, and that the company was “the jewel in the crown”.

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