HUL Q1 Results: Profit Rises In Line With Estimates, Volume Growth Slowest In Five Quarters

Hindustan Unilever Ltd. reported a single-digit rise in profit in line with analyst estimates for the first quarter of fiscal 2024, even as its volume grew at the slowest pace since the first quarter of the previous fiscal.

The consolidated net profit of India's largest consumer goods maker, attributable to the shareholders, increased 7% to Rs 2,554 crore in the quarter ended June over the preceding year, according to an exchange filing. That compares with the Rs 2,593.5 crore consensus estimate of analysts tracked by Bloomberg.

HUL Q1 FY24 Highlights (Year-on-Year)

• Revenue up 6% to Rs 15,496 crore, against the Rs 15,491 crore forecast.

• Operating profit rose 8% to Rs 3,665 crore, against an estimate of Rs 3,645.9 crore.

• Margin stood at 23.7% against 23.3%. Analysts had pegged it at 23.5%.

• Total expenses rose 6% to Rs 12,167 crore.

• Advertising spending rose 12.8% to Rs 1,505 crore.

Volume rose 3% over a year ago in the April-June quarter, as compared with 4% in the preceding three months, according to the company.

"FMCG markets are recovering gradually, although the operating environment remains challenging," Rohit Jawa, managing director and chief executive officer at HUL, said in his first media interaction since he joined the company on June 27.

Jawa replaced Sanjiv Mehta, who retired after a 10-year stint.

The fast-moving consumer goods market is seeing a gradual recovery in volume as inflation continues to moderate, said Ritesh Tiwari, chief financial officer at HUL, in a post-earnings media briefing. The market volume grew 5% during the quarter, led by urban markets.

Rural markets, which have been on a declining spree, turned positive during the quarter. Still, the rural volume growth remains at negative 4% on a two-year CAGR basis, according to the company's presentation.

The Surf Excel-maker said that the return of small players in the market, who vacated at the peak of inflation, has increased the competitive intensity. HUL, however, gained a market share in 75% of the categories in terms of value and volume, said Tiwari.

Key Segmentwise Highlights

• Revenue from home care segment rose 10% despite a strong base.

• Beauty and personal care segment grew 4.8%.

• Food and refreshment grew 4.6% with a near flat underlying volume growth. Volume for coffee, ice-cream and health food drinks declined to mid-single digits, according to the company.

Unseasonal rainfall impacted ice-cream consumption, especially in North India, according to the company.

During the June quarter, HUL's gross margin increased 280 basis points over the previous year to 49.2%. The company has seen 140 basis points gross margin expansion sequentially. "We remain focused on building back our gross margins, while stepping up investments behind our brands," said Tiwari.

Similar concerns were flagged by peer Dabur India Ltd. in its quarterly update. The maker of Real fruit juice said its food and beverage business had a "muted" June quarter as sales of its summer-centric beverage portfolio were impacted due to "unseasonal rain and a moderate summer".

Overall, the first quarter updates have been mixed. Marico Industries Ltd., in its update, said its consolidated revenue fell to the low single digits. This was due to the persistent sluggishness of rural consumption. However, price cuts, which made its cooking oil 30% cheaper, resulted in double-digit volume growth for its Saffola range.

Adani Wilmar Ltd., owner of the Fortune brand, said its sales declined by 15% due to a sharp fall in edible oil prices. This, however, eclipsed the strong demand for its products. It has pegged Q1 volume growth at 25%.

Godrej Consumer Products Ltd. saw double-digit volume growth in its domestic business in the June quarter, driven by strong demand in home and personal care segments.

Easing raw material prices is expected to drive gross margin expansion for most consumer goods companies.

However, the higher advertisement expenditure is likely to offset the gross margin gain, with Ebitda margin seeing a modest growth.

In terms of outlook, Tiwari said that the near-term operating environment remains volatile with weather-related disturbances.

"We need to be watchful of the progress of monsoon and any possible impact of El Nino on crops and rural demand," he said. "Volumes are expected to recover only gradually due to high levels of cumulative inflation and as consumption habits typically recover with a lag."

Jawa highlighted that the industry will continue to witness a re-balancing of price-volume growth equation and gradual recovery in demand.

Shares of Hindustan Unilever rose 1.15% ahead of the results, as compared with a 0.74% advance in the benchmark NSE Nifty 50.

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