Informist, Wednesday, Apr 24, 2024

--HUL: Jan-Mar net profit 24.06 bln rupees vs 25.52 bln
--Analysts saw HUL Jan-Mar net profit 24.73 bln rupees
--Jan-Mar to pay 24 rupees/share final dividend
--Jan-Mar revenue 148.57 bln rupees vs 148.93 bln
--Jan-Mar EBITDA 34.35 bln rupees, down 1% on year
--Jan-Mar EBITDA margin 23.4%, down 30 bps on year
--Underlying volume grew 2% on year in Jan-Mar
--See low-single digit price growth by end of FY25
--Recovery has started in rural mkts, expect it to continue
--Took further price cuts in mass skin cleansing products
--Aim to continue driving gross margin improvement
--Regaining lost market share in detergent bars
--GSK contract termination to hit margin 50-60 bps over 2-3 qtrs
--Optimistic about consumer demand gradually improving
--Consumer demand to improve as monsoon seen normal
--FY24 EBITDA margin 23.8%, up 40 bps from FY23
--Underlying volume grew 2% in FY24
--FY24 net profit 101.14 bln rupees vs 99.62 bln
--FY24 revenue 604.69 bln rupees vs 591.44 bln
--FY24 EBITDA 141.90 bln rupees, up 4% from FY23
--Revenue of home care segment grew 1% on year in Jan-Mar
--Revenue of beauty, personal care segment fell 2% YoY Jan-Mar
--Revenue of food, refreshments segment grew 4% YoY in Jan-Mar
--Revenue of home care segment grew 3% in FY24
--Revenue of beauty, personal care segment grew 2% in FY24
--Revenue of food, refreshments segment grew 4% in FY24
--See consumer demand improving on better macroecon conditions
--Confident of medium to long-term potential of FMCG sector
--See product prices falling in low-single digit in near term
--See product prices falling if commodity prices stable
--See EBITDA margin remaining at current levels in near term
--Working to improve performance of skin cleansing segment
--Focused on driving competitive volume-led growth in near term
--Cut prices of skin-cleansing products in Jan-Mar
--Demand issues in mass skin-cleansing products, not competition
--Have undertaken all possible price cuts across portfolios

By Akshata Gorde

MUMBAI – For the first time since the COVID-hit March quarter of 2020, Hindustan Unilever Ltd saw a year-on-year fall in its net profit as lower product prices and a subdued demand environment weighed on its business in Jan-Mar. India's largest fast-moving consumer goods company also failed to meet the Street's expectations on most key parameters in the reporting quarter.

The detergent and soap maker reported a net profit of 24.06 bln rupees, down nearly 6% on year and below analysts' average estimate of 24.73 bln rupees. The company's profit after tax in the year-ago quarter was propped up by an exceptional gain of 800 mln rupees from the sale of surplus properties and brand rights. Sequentially, the bottomline fell 4.5%.

Missing Street expectations, the revenue from operations fell marginally on the year to 148.57 bln rupees from 148.93 bln rupees. Analysts had estimated the revenue at 150.38 bln rupees. The company's sales were underpinned by a 2% on-year volume growth, the same as seen in the past two quarters. This was also below expectations of 2.5%, and lower than the 4% volume growth reported in the corresponding quarter last year.

While the overall demand scenario still remains uncertain, HUL remains positive about a gradual improvement, especially of a recovery in the rural markets, in the near-term. "Looking forward, I am optimistic of consumer demand gradually improving due to a normal monsoon and better macroeconomic indicators," Rohit Jawa, the chief executive officer of Hindustan Unilever, said in its earnings press release.

HUL continued to lower product prices across categories to drive sales in this tough demand environment, and said that it has undertaken all possible price cuts so far. However, Jawa said in a post-earnings call that the company does not plan on waiting for macroeconomic conditions to improve, and is focussing on growth pockets within the industry. The slowdown in HUL's earnings was also apparent in the numbers for the full financial year.

The company's net profit for 2023-24 (Apr-Mar) was 101.14 bln rupees, up 1.5% from the previous year. This is a sharp decline in profit growth for the company after having reported a 13% rise in net profit in 2022-23. Revenue for the full year was 604.69 bln rupees, higher than 591.44 bln rupees in 2022-23, led by 2% volume growth. Earnings before interest, taxes, depreciation and amortisation for the year was 141.90 bln rupees, with the EBITDA margin rising 40 basis points from the previous year to a healthy 23.8%.

PROFITABILITY

The industry leader's profitability was marred by higher advertising and promotional expenses, increased royalty payment, and subdued sales during the March quarter, partly offsetting the benefit from benign raw material prices. The termination of the company's distribution agreement for over-the-counter and oral care products of GlaxoSmithKline Consumer Healthcare Ltd also hit operating margin by 60 basis points, the company said.

The EBITDA margin contracted 30 basis points to 23.4% in Jan-Mar, compared to 23.7% reported a year ago. Similarly, the company's EBITDA fell to 34.35 bln rupees from 34.71 bln rupees a year ago.

The fall in operating margin was despite a 350 basis point improvement in gross margin to 51.3% during the March quarter. While the company saw a fall in its largest expenses on raw materials and purchases, its advertising, employee and finance costs inched higher during the quarter. The company's advertising and promotional expenses were 10.8% of sales in Jan-Mar, up 200 bps on year.

PRICING OUTLOOK

Having taken all possible price cuts in the March quarter, the company said it expects the pricing growth to remain negative in the near-term if raw material costs remain stable. On the same condition, the company's Chief Financial Officer Ritesh Tiwari said he expects low-single digit pricing growth by the end of 2024-25.

SEGMENT PERFORMANCE

Hindustan Unilever's largest home care division saw sales growing 1% on the year during the March quarter, driven by mid-single digit volume growth. The volume-led growth was seen on the back of price cuts undertaken in its fabric wash and household care products.

The beauty and personal care portfolio, which houses brands such as 'Dove' and 'Lakme', saw a year-on-year fall of 2% in sales in Jan-Mar. The fall was largely due to a 10?cline in its personal care division's sales, while beauty and wellbeing saw a 4% rise. The company said it will provide detailed accounts of the newly subdivided beauty and personal care segment from the June quarter.

The company saw a drop in volumes of skin cleansing and personal care portfolio as a whole, despite further price cuts in Jan-Mar. The company said it plans to ensure "superior formulation in mass and popular segments" for improving its skin-cleansing portfolio, along with "intensifying innovations in premium demand spaces and formats" and "accelerating channels of future."

The foods and refreshment category, which includes brands such as 'Cornetto' and 'Bru', saw an on-year rise of 4% in sales. However, the tea segment continued to see consumers moving to loose tea, the company said.

Today, shares of Hindustan Unilever closed flat at 2,260.25 rupees on the National Stock Exchange. The company reported its earnings after market hours. End

Edited by Ashish Shirke

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