HUL: Volume growth continues to struggle at 5% in Q2

Higher taxes, depreciation, raw material costs impact PAT growth

Growth isn’t picking up for consumer companies, if Hindustan Unilever (HUL)’s September quarter numbers are anything to go by. While standalone net sales grew 10.8 per cent year-on-year (y-o-y) to Rs 7,640 crore, volume growth remained tepid at five per cent, which disappointed analysts. The quarter's sales growth has been driven by 11 per cent growth in soaps and detergents. The personal products segment grew 9.9 per cent y-o-y, exhibiting signs of continued weakness. The laundry segment’s growth, analysts claim, has been driven by the premium segment, though the Wheel brand is showing traction after its relaunch.

The company’s domestic consumer business grew 10.7 per cent y-o-y to Rs 5,800 crore, due to robust growth in select categories. Though input prices have been coming down over the past few quarters, HUL has seen raw material prices increase y-o-y. The share of raw material prices as a percentage of sales during the quarter was 51.8 per cent, compared with 50.3 per cent a year ago. This impacted gross margins, which have declined 150 basis points y-o-y to 48.2 per cent. Despite the decline, operating margins improved 50 basis points y-o-y to 16.3 per cent, as the input cost inflation ebbed towards the end of the quarter. The company is also keeping a check on costs to protect its margins. Compared with last year, advertising and promotion spends have declined as a percentage of sales, as have other expenses. Advertising expenses as a percentage of sales have fallen from 13.8 per cent in the second quarter of FY14 to 12.1 per cent of sales.

  While most segments have seen their margins decline sequentially, compared to last year, segment margins are up other than the soaps and detergents. The soaps and detergents segment saw its Ebit (earnings before interest & tax) margin decline 40 basis points y-o-y to 13.6 per cent. The Ebit margin for the personal products segment expanded 160 basis points y-o-y to 24.4 per cent and processed foods business saw Ebit margin expand 110 basis points y-o-y to 4.4 per cent. While growth in key categories such as skin cleansing and skin care remained strong, growth in the oral care segment has been impacted by the competitive intensity.

According to Emkay Global, HUL’s adjusted profit after tax grew 6.7 per cent to Rs 940 crore, which is below estimates, owing to higher depreciation and higher tax rate. The company’s reported profit after tax grew 8.1 per cent y-o-y to Rs 990 crore.