Hindustan Unilever’s stock leaped 7.4 per cent after touching an all-time high of Rs 377, leading to one per cent rise in the Bombay Stock Exchange FMCG (fast moving consumer goods) index despite the Sensex’s flattish movement as the company reported significantly better than expected performance in the second quarter across all three main parameters — sales, operating profit and net profit.
Total operating income rose 17.7 per cent year-on-year (y-o-y) to Rs 5,610 crore, which was higher than 12-15 per cent expected by analysts and even ahead of the market. Value growth was higher than volume growth, especially led by soaps and detergents business (S&D), which contributes 45 per cent to overall revenues.
Overall volume growth of 9.8 per cent also came close to double digits despite a higher base in the same period last year (14 per cent) and general inflationary scenario in India.
Analysts had expected the same to come off further after significant y-o-y decline seen in the previous quarter (8.3 per cent). Price rise in soaps and detergents (Rexona, Hamam, Pears, Lux, Surf, Rin), personal products (Fair and Lovely) and coffee (Bru) further helped.
“Volume growth continues to be strong in personal products, but the same is challenging for S&D, ” said Nitin Paranjpe, chief operating officer and managing director.
All segments delivered double digit growth for third consecutive quarter, but main contribution came from soaps and detergents business, which jumped 21.7 per cent, highest in the past 11 quarters, followed by personal products business (18 per cent). Both together constitute 75 per cent of the total sales.
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Operating profit margin jumped 115 basis points (bps) to 14.7 per cent largely due to price rise. Analysts had expected the same to inch up close to 50 bps. Ad spends are unlikely to decline going forward as competition continues to remain high, said Paranjpe.
Personal products witnessed a higher expansion of 142 bps in profit before interest and tax (PBIT) margin even as the same in case of S&D sprung back to double digits after three quarters.
“Though raw material prices have flattened, it is difficult to predict the exact trend as they have become volatile,” said R Sridhar, chief financial officer. It also partly depends on movement of the rupee across the dollar as most of the commodities are linked to global rates, he said.
“Our focus is to minimise costs all the time through aggressive savings programmes,” said Harish Manwani, chairman.
A 22.6 per cent growth in net profit after adjusting for extra ordinary gains led to 46 bps increase y-o-y in net profit margin compared to decline seen in most of the past several quarters.
“The future outlook is a mix of tailwinds and headwinds. While good growth in FMCG industry, good monsoons, our diversified portfolio and investments in building capabilities are positives, uncertain global economic environment, higher competitive intensity, general inflation and rupee depreciation pose as challenges. However, consumer confidence is good in India compared to developed markets though it has dampened slightly due to high inflation in recent times. Our strive is to grow competitively, sustainable and profitably by way of straddling the pyramid and premiumisation of products,” said Manwani.
The management declared an interim dividend of Rs 3.5 per share, which is 350 per cent over its Rs 1 face value.