HUL Q2 profit rises 20%, volumes by 4%

Net profit rose to ₹2,616 crore for the three months ended 30 September from ₹2,187 reported in the year-ago period. A Bloomberg survey of analysts had expected the company to report a standalone profit of ₹2,320 crore.

The maker of Sunsilk shampoo and Surf Excel detergent said revenue rose 16% from a year earlier to ₹14,751 crore led by demand for its home care products, fabric cleaners, ice creams, and premium skin cleansing brands.

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“The demand environment remains challenging with inflation impacting consumption,” said Sanjiv Mehta, chief executive and managing director.

“However, with softening in some commodities and monetary/fiscal measures taken by the government, we are cautiously optimistic in the near term. In this scenario, we will manage our business with agility and continue to grow our consumer franchise while maintaining our margins in a healthy range,” Mehta said.

Quarterly sales volumes rose 4% from a year earlier, but slowed from 6% growth in the preceding June quarter. Gross margins contracted by 5.8 percentage points to 45.8% from a year earlier. Earnings before interest, taxes, depreciation and amortization (Ebitda) grew 7.8% to ₹3,380 crore during the September quarter.

HUL’s performance is seen as a proxy for broader consumer sentiment in India.

The management said the fast-moving consumer goods market grew 7% in value terms, and volumes declined 6%, citing data from market researchers. This data is specific to categories that the company operates in, including soaps, shampoo, ice creams, floor cleaners, and oral care. Volumes were more stressed in the rural market, the company said.

This is indicative of the fact that high inflation continues to squeeze low- and middle-income households in India. However, HUL said its growth was significantly ahead of the market, with more than 75% of the business winning value and volume market shares.

Addressing reporters after releasing the company’s earnings, Mehta said commodity prices would need to cool down significantly for firms to pass on benefits to end consumers, which will help lift volumes.

“Prices are still significantly ahead of the median for the last 10 years. If we look at the net material inflation, it was 22% in the quarter that has gone by—which is pretty significant. So, once that starts cooling down, then the manufacturer or marketers will start passing down the benefit of lower commodity prices. And that’s when we will see the volumes go up,” he said.

The firm recently cut prices on certain soap brands such as Lux and Lifebuoy. On future price cuts and price hikes, the company said it is “very difficult” to ascertain the same.

“We continue to manage our business dynamically, driving savings harder across lines of P&L, investing competitively behind our brands and ensuring the right price-value equation,” the company said in its earnings statement.

Revenue from the home care portfolio, comprising brands such as Vim, Wheel and Comfort, grew 34%, with volumes growing in double digits. The company took calibrated price increases across fabric wash and household care products as input costs soared.

Meanwhile, the beauty and personal care business reported an 11% increase in quarterly revenue, led by strong demand for its premium products.

The foods and refreshment business, its smallest, reported a 4% growth in segment revenues, led by foods, coffee and ice cream. However, the company’s tea business reported a marginal decline in sales.

Amnish Aggarwal, head of research at brokerage Prabhudas Lilladher, said inflationary pressure may have peaked. The brokerage expects HUL to see sequential margin recovery. “The quarter saw high-priced inventory come into the system, which led to sharp gross margin slippage of 580bps to 45.8%. Ebitda margins at 22.9% were managed due to a cut in ad spending (250bps) and lower other expenses (180bps),” he said.