While demand was impacted both in urban and rural markets, the recovery has been led by rural demand, which is bouncing back nicely, the company management said in an earnings video call.
Hindustan Unilever’s (HUL) performance in the June quarter was in line with the market’s estimates, with the net profit rising 10% year-on-year to Rs 2,061 crore. This was in line with Bloomberg consensus estimate of Rs 2,211.10 crore.
Despite the brutal second wave of Covid-19, the company was able to clock a volume growth of 9% backed by mixed consumption trends, which dipped starting mid-April to May due the severity of the pandemic but picked up in June as the impact started to ebb. HUL had reported a volume growth of 16% in during January-March 2021 and -7% in the June quarter of the previous fiscal.
While demand was impacted both in urban and rural markets, the recovery has been led by rural demand, which is bouncing back nicely, the company management said in an earnings video call. According to a Nielsen retail audit, the rural market grew 1.04X in June while the urban market grew at 0.96X. The volume growth for HUL during the quarter was supported by increased penetration and gain in market share by most of the company’s business.
Revenues from operations increased 12.8% y-o-y to Rs 11,915 crore, with all three divisions — home care, beauty and personal care, and foods and refreshments — growing competitively and in double digits. Revenues were below analyst estimates of Rs 12,168.42 crore. The home care division grew at 12%, enabled by double-digit growth in fabric wash, while household care continued to perform well, growing in high double digits on a strong base. Beauty and personal care grew 13% led by hair care and skin care, both growing in high double digits. Foods and refreshments also recorded a strong performance and grew at 12%.
Sanjiv Mehta, chairman and managing director, HUL, said the localised and calibrated lockdowns during the second wave as opposed to a national lockdown has been good for the business. “It has resulted in no panic buying, supply chain and back-end kept functioning, and even in areas which went into lockdown, the retail stores remained open, so we could meet demands of the consumers,” he said. He said the company is cautiously optimistic about demand recovery, which is already on an uptrend led by demand in rural markets.
The company’s operating income (earnings before interest, tax, depreciation and amortisation) was up 8.3% to Rs 2,860 crore during the quarter, led by revenue management and a stringent savings programme, even though it missed analyst expectations of Rs 3,014.48 crore. However, high commodity price inflation dented operating margins during the quarter, which declined 100 basis points to 24%.
Ritesh Tiwari, chief financial officer, HUL, said the cost of goods sold went up by 150 basis points during the quarter, as three of the key categories — skin cleansing, tea and laundry — are exposed to commodities like crude, palm oil and tea, which are all witnessing multi-year high inflationary levels. “As this happened, we have embarked on a stringent savings programme and we generate more than 8% of our turnover as savings in our business. At the same time we have taken judicious and calibrated price increases in all three categories,” he said.
Expecting the commodity price inflation to continue for a while, Tiwari said HUL’s focus will be on generating synergies and savings in the business coupled with calibrated and judicious price increases to “protect the overall margin model”.