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HUL’s 80 bps royalty hike to Unilever will hurt, says Jefferies – Moneycontrol

The FMCG major increased royalty and central services fees payable to the parent Unilever Plc from 2.65% of turnover in FY22 to 3.45%

In a surprise move, the board of Hindustan Unilever (HUL) on January 19 approved a proposal to increase royalty and other fees to parent Unilever Plc by 80 basis points to 3.45 percent, which will likely hurt the company and shareholders.

HUL approved an increase in royalty and central services fees payable to Unilever Plc from 2.65 percent of turnover in FY22 to 3.45 percent of the turnover.

The increase, reported alongside the numbers for the December quarter, would be effective in a phased manner over three years, starting February 1, 2023. The new agreement will be applicable for a period of five years.

The revision comes after 10 years.

“The last increase was in Jan-13 and was also in phases but a key difference we see is HUL is now at its near-peak margin so this hike will likely hurt unlike the last time,” said Vivek Maheshwari, Equity Analyst at Jeffries.

Also read: HUL hikes royalty payment to Unilever by 80 bps to 3.45% of turnover

HUL said its standalone net profit increased by 12 percent to Rs 2,505 crore in the December quarter. The FMCG behemoth’s standalone revenue from operations came in at Rs 15,228 crore, up 16 percent against Rs 13,092 crore logged in the corresponding quarter of the previous fiscal.

Overall, Maheshwari said the third quarter results were slightly better on growth and a miss on margin. He noted that EBITDA margin was a tad lower than expected, at 23.2 percent YoY (versus 23.9 percent estimate). Put together, EBITDA growth at 8 percent YoY was largely in-line. EPS growth (rose 13 percent YoY) benefited from higher other income.

ALso read: HUL Q3: Net profit rises 12% to Rs 2,505 crore; beats estimates

The management remains cautiously optimistic in the near term and believes that the worst of inflation is behind. This should aid a gradual recovery in consumer demand, as per the management.

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Shubham Raj

Shubham Raj has five years of experience covering capital markets. He primarily writes on stocks with special focus on PMS-AIF industry, telecom and new-age companies. His last stint was with The Economic Times where he wrote on stock markets and led IPO reportage.