HUL Q2 signals pick-up in consumer demand

The demand growth outlook in the near term looks healthy, says Hindustan Unilever chairman Sanjiv Mehta. Photo: S. Kumar/Mint

The demand growth outlook in the near term looks healthy, says Hindustan Unilever chairman Sanjiv Mehta. Photo: S. Kumar/Mint

Mumbai: Packaged consumer goods bellwether Hindustan Unilever Ltd (HUL) kicked off the sector’s earnings season on a strong note on Friday, with healthy consumer demand leading to double-digit volume growth in the September quarter (Q2), beating analysts’ estimates. The demand growth outlook in the near term looks healthy, said Sanjiv Mehta, chairman and managing director. He said the effect of the goods and services tax (GST) and government measures for the farm sector have supported growth.

image

Volume growth, a key measure that looks at growth without price increases, was at 10% in the September quarter. This is notable because there was no base effect in this quarter. The company increased prices in select categories to pass on higher costs.

Sales grew by 11.1% to ₹ 9,234 crore from ₹ 8,309 crore, said the maker of Knorr soups, Surf and Wheel detergents and Lux soaps. It said the domestic consumer business grew by 12%, indicating that price increases played a very small part in sales growth.

Demand was broad-based, said the management. The personal care portfolio, which accounts for nearly half of HUL’s overall revenue grew 10.38%. The home care portfolio, which includes its detergents business and accounts for close to a third of its overall revenue, grew 12.45%. Foods and beverages grew by 11.66%, led by tea and coffee.

Rural markets, which account for approximately 40% of overall revenue, continued to grow ahead of urban markets. “Rural is growing at 1.25 times of urban,” said Mehta, attributing it to the impact of higher minimum support prices and loan waivers that cumulatively have helped push up industry volume growth rates from 3-4% two years ago to 7% levels now.

While market growth has trended up, the company continues to look for selective acquisitions. In the September quarter, it acquired Adityaa Milk ice cream and its integration has commenced. The company’s ‘naturals’ portfolio is growing at 2.5 times overall company growth.

The company’s net profit rose to ₹ 1,525 crore in Q2, from ₹ 1,276 crore a year ago. A Bloomberg poll of 12 analysts had estimated HUL’s Q2 profit at ₹ 1,425.7 crore and revenue at ₹ 9,216.1 crore.

HUL’s operating profit margin, which indicates how effective a company is at controlling costs, expanded 162 basis points to 21.86% in the quarter from a year earlier. The improvement was on account of a well-established savings programme and leverage. Also, while crude oil costs increased, vegetable oils traded soft. One hundred basis points make up one percentage point.

The company’s management expects demand to remain stable in the near term, but it has flagged crude and currency as key risks to watch for.

“We will have to take calibrated price increases,” said Mehta. He explained that the macro environment is volatile and the currency depreciation as well as crude oil price increase will impact the company with a lag.

The fast moving consumer goods (FMCG) sector and HUL already command a price-to-earnings multiple of 32.10 and 54.90 times trailing 12-month earnings each respectively.

On Friday, HUL shares closed at ₹ 1,568.65, up 2.63%, on the BSE even as the benchmark Sensex ended at 34,733.58 points, up 2.15%. HUL results were announced after market hours.

First Published: Fri, Oct 12 2018. 05 24 PM IST

Source: Livemint