Double-digit growth boosts HUL's Q4 show; management cautious about outlook

Despite consecutive quarters of 11% volume growth, management cautious about outlook

Led by robust volume growth of 11 per cent across its four key segments, Hindustan Unilever reported a 16 per cent year-on-year (y-o-y) increase in revenues for the March quarter (Q4). While the numbers are adjusted for the impact of the goods and services tax (GST), growth metrics reported by the company are similar to those reported in the December quarter. 

Most brokerages had pegged a growth of about 7 per cent and this was led by a strong recovery in rural markets, steady urban demand as well as stabilising of the trade channels. GST price reduction to the tune of 8 per cent in November-December also helped push up the volumes as well as moved up customers to the premium category. The revenues from the largest segment of personal care, which accounts for 48 per cent of revenues, was up 13 per cent while home care — the second largest category — grew by 21 per cent. Growth is expected to be driven by key personal care/home care as well as the naturals segment, which are growing at twice the company average.

Despite the strong volume performance across categories and management commentary on the worst being behind, as well as rural recovery, the company was cautious about growth outlook. The company is awaiting a clear trend for two more quarters before they call out on a clear growth trend. The steady upward trend of the rural markets is key for the company as 35-40 per cent of revenues and much higher volume growth comes from those markets. 

On the profitability front, the company continues to benefit from strong revenue growth resulting in adjusted margins improving 160 basis points over the year-ago period. The gains were led by volume-led leverage benefits, cost efficiencies, and an improving product mix with higher share of premium products. 

Going ahead, however, margins could come under pressure given the higher cost of crude oil and derivatives as well as higher competitive intensity.