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Hindustan Unilever Ltd (HUL), India’s largest fast-moving consumer goods (FMCG) company, reported a slight increase in consolidated net profit for the December quarter of 2023-24, falling short of market expectations. The company said weak rural consumer sentiment and delayed winter were behind its underwhelming performance.
Its net profit was Rs 2,509 crore in Q3FY24, up only 1.4 per cent from Rs 2,474 crore in the same quarter the previous year. The FMCG major’s revenue was down marginally by 0.3 per cent year-on-year (Y-o-Y) to Rs 15,294 crore, while volume growth was only 2 per cent Y-o-Y.
According to Bloomberg, analysts had pegged HUL’s revenue at Rs 15,642.2 crore and net profit at Rs 2,572.7 crore for Q3 FY24. Ebitda (earnings before interest, tax, depreciation and amortisation), too, at Rs 3,540 crore were below expectation of Rs 3,734.2 crore.
The company’s PBIDT (profit before interest, depreciation and tax) increased by 2 per cent in the October-December quarter, reaching Rs 3,879 crore.
Sequentially, HUL’s revenue was down 0.5 per cent and its net profit was down 5.5 per cent. Rural consumer sentiment remained a concern for the company during the quarter under review.
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“Rural income growth and winter crop yields are key factors that will determine the pace of recovery. In this context, our focus remains on driving competitive volume growth while stepping up investment behind our brands and long-term strategic priorities,” said Rohit Jawa, managing director & chief executive officer of HUL in the company’s earnings release.
At its post-earnings press conference, HUL’s chief financial officer, Ritesh Tiwari, attributed the relatively weak showing in Q3 to the impact of an uneven monsoon on kharif output, which affected agricultural yields and rural incomes.
"Lower reservoir levels continue to be a concern for rabi crops. The delayed and milder winter this year has impacted the winter categories.
Furthermore, rural consumer sentiment remained subdued. The anticipated buoyancy from the festival season did not materialise," said Tiwari.
Despite these challenges, HUL expects a gradual recovery in demand, supported by increased government spending and a recovery in winter crop yields. "We remain confident of the mid-to-long-term potential of the Indian FMCG sector and HUL remains well positioned to unlock this opportunity while navigating the short-term challenges," Jawa said in the company’s release.
Other FMCG companies have also mentioned continued stress in rural demand in their quarterly updates ahead of their results.
On a two-year CAGR (compound annual growth rate) basis, market volume growth stood at 2 per cent, HUL said. Urban volume growth was at 3 per cent on a two-year CAGR basis; rural growth was at 1 per cent.
According to HUL’s investor presentation, premium products are growing faster than the mass market. “Volume growth of premium products is significantly ahead of mass in the market,” Tiwari noted, adding that price growth in the market continued to tail off as expected, and was marginally negative in the current quarter.
The company has increased its investments in response to high competitive intensity from regional and local players. “We have stepped up investments for two reasons — overall competitive intensity in the market has increased, and we have increased investments to support higher innovation, price and promotion, and volume recovery. And equally, we have dialed up investments in product superiority. So, that set of investments and capability is what has gone into using the pool of resources that we generated by driving high across margins,” Tiwari explained.
HUL reported that it is gaining market share in 60% of its business.
Jawa further said that regional or local competition is not new to the company. “We (are) working in this market environment for a long, long time… But, of course, as prices went down and because competition comes in all shapes and sizes across different regions, we had to adjust our prices, especially, for example in detergent bars, where I now believe they are at an optimal level; there could be some correction on the boundaries.”
The company’s cost of goods sold (materials consumed, purchases, and change in inventories) fell by 7.75 per cent Y-o-Y to Rs 7,479 crore in Q3 FY24, from Rs 8,108 crore in the year-ago quarter. Most of this savings went into advertising and promotion expenses, which stood at Rs 1,626 crore compared to Rs 1,209 crore a year ago.
On a standalone basis, HUL said in its release that its homecare division saw a marginal decline in revenue with mid-single-digit underlying volume growth in the December quarter.
In beauty & personal care, its revenue remained flat with mid-single-digit underlying volume growth. Its skin cleansing revenue declined due to the impact of price reductions taken by the maker of LUX to pass on the benefits of lower commodity costs to consumers.
Foods & refreshment revenue grew 1 per cent; in tea, it further strengthened its value and volume market leadership.
