 "Hindustan Unilever Q1 results: Net profit rises 7.3% to Rs 2.6K crore")
Hindustan Unilever (HUL) — the country’s largest fast-moving consumer goods (FMCG) major — registered a 7.3 per cent year-on-year increase in consolidated net profit in the 2023-24 (FY24) April-June quarter (first quarter, or Q1), in line with Street estimates.
This growth comes on the back of an improvement in margins in the quarter, coupled with rural demand moving into positive territory for the industry.
The company registered a volume growth of 3 per cent during the quarter. While net profit rose to Rs 2,554 crore, from Rs 2,381 crore in the year-ago period, revenue increased 6 per cent to Rs 15,496 crore.
Rohit Jawa, the newly appointed managing director and chief executive officer at HUL, said, “As far as our mission is concerned, we do want to stay resilient and competitive. We are laser-focused on that objective to drive volume growth in the quarters ahead.”
“It’s also a fact that consumption recovers with a lag. By the time consumers can pick up the low-price stock, it will take a few quarters, assuming commodities stay where they are. We expect volumes to gradually pick up. We see signs of volumes improving,” added Jawa.
On a two-year basis, HUL’s volume growth is about 5 per cent.
“Volume growth is competitive in more than 75 per cent of our business. We are also growing competitively by volume. If you disaggregate, the homecare and personal care businesses are where we are gaining in mid- to high single-digits of volume growth. I would say it’s on expected lines. Where we have flat volume is basically in the food refreshment business,” said Jawa.
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“The tea market is downtrading. Although by volume we’ve grown more, the mix has come down. Ice creams had a bad season on a very high base last year. In health food drinks, we grew handsomely on the price base as the cost is also going up. In coffee, the prices have gone up. That’s impacted volumes as well,” he observed.
According to Bloomberg, the analysts had pegged revenue at Rs 15,491 crore and net profit at Rs 2,546.6 crore, for Q1FY24. In its press release, HUL said that unseasonal rains impacted ice cream consumption in the quarter.
FMCG companies in their pre-quarterly updates pointed out that there has been a gradual recovery in rural demand. Demand has been under pressure for the sector for over a year as inflation caused consumers to tighten purse strings.
Said Ritesh Tiwari, chief financial officer, HUL, in a press conference after its results, “With most commodities remaining stable in the quarter, inflation continues to moderate. Consequently, we are seeing a gradual recovery in market volume growth. FMCG market volumes grew in mid-single digits, led by urban.”
“Rural market volumes, which, at one point, were declining in double digits have just turned positive this quarter. We need to be cognisant that this growth has come on the back of a volume decline in the base. If you look at market growth on a two-year compound annual growth rate basis, the total to volume growth is still marginally negative,” added Tiwari.
In its outlook, the maker of Lux soaps expects the near-term operating environment to be volatile with water-related risks.
“We need to be watchful of the progress of monsoon and any impact of El Nino on cropping and rural demand. We expect market volumes to recover gradually due to high levels of cumulative inflation, and the fact that consumption habits typically recover with a lag,” Tiwari said.
While talking about the outlook for the next couple of quarters, he expects price growth to tail off further, with high prices and sequential price reductions.
If commodities remain where they are, HUL expects its price growth to be near flat or marginally negative for the next few quarters. With inflation moderating, the competitive intensity is likely to go up further.
On margins, Tiwari said, “Moving on to margins, as we indicated, we remain focused on building back up our gross margin and stepping up investments. In this quarter, our gross margin improved sequentially by 140 basis points (bps), and we stepped up A&P investments by 110 bps versus the March quarter of 2022-23.”
In the release, Jawa said, “FMCG markets are recovering gradually, although the operating environment remains challenging. In this context, we have delivered a resilient and competitive performance whilst stepping up our earnings before interest, tax, depreciation, and amortisation margin.”
He also said, “In the near-term, the FMCG industry will continue to witness rebalancing of price/volume growth equation and a gradual recovery in consumer demand. In this environment, we will continue to provide superior value to our consumers and invest in our brands. We remain focused on driving our long-term strategic priorities, including market development and building distinctive capabilities for the future.”
HUL said it is witnessing a resurgence of small and regional players as commodity prices have started to decline. This has also increased the competitive landscape in the industry. Ahead of the results announced after market hours, HUL’s stock was up 1.15 per cent at Rs 2,702.35 on the BSE.