HUL margins up, but volume growth lowest in 5 quarters

Q4 profit of Rs 1,090 crore beats estimates

India's largest consumer goods firm, Hindustan Unilever (HUL), posted a better-than-expected seven per cent increase in its standalone net profit at Rs 1,090 crore for the quarter ended March 2016, after witnessing a decline in the previous two quarters.

Volumes grew at four per cent year-on-year, the lowest since the December 2014 quarter. Thereafter volumes grew at six-seven per cent.

Net sales rose 3.37 per cent to Rs 7,809 crore during the quarter under review, two per cent lower than Bloomberg estimate of Rs 7,986 crore. Net profit, on the other hand, was six per cent higher than Bloomberg estimate of Rs 1,028 crore. This was partly helped by exceptional income of Rs 43 crore, excluding which profits were largely in line with expectations.

Chief Financial Officer P B Balaji blamed slowing rural sales growth for lower volume growth. He said phasing out of excise duty benefits had also impacted Q4 growth.

Analysts said performance of certain categories, particularly personal products, was disappointing.

"The top line miss is largely attributable to the personal products segment, where sales growth slowed down to nearly three per cent year-on-year, compared with our estimate of six per cent year-on-year," said Ritwik Rai, analyst, Kotak Securities.

Abneesh Roy, associate director, research, institutional equities, Edelweiss said growth in personal products was impacted by phasing out of excise duty benefits and a one-time excise credit in the base quarter of around 100 basis points. One basis point is one-hundredth of a per cent.

HUL derives 50 per cent of its top line from soaps and detergents, and 30 per cent from personal products.

In absolute terms, HUL's revenue from personal products stood at Rs 2,312 crore. Soaps and detergents grew by just two per cent to Rs 3,752 crore. While beverages revenue grew by 6.1 per cent to Rs 1,036 crore, packaged foods revenue jumped by 11.5 per cent to Rs 532 crore. Earnings before interest & tax (Ebit) and Ebit margins for all categories were significantly up, analysts said. Raw material costs for the quarter fell by 2.9 per cent to Rs 976 crore because of benign commodity prices. However, advertising and sales promotion expenditure increased by 6.3 per cent to Rs 1,090 crore.

Despite an increase in ad spend, HUL's operating profit or earnings before interest tax depreciation and amortisation (Ebitda) grew by 11.3 per cent to Rs 1,466 crore, compared with Rs 1,317 crore a year ago. Operating profit margins stood at 18.5 per cent, compared with 17.2 per cent in the year-ago period. HUL's stock fell 1.28 per cent to Rs 842 during afternoon trade on BSE Sensex, soon after the results were announced on Monday. It closed trade at Rs 846.10, down 0.80 per cent.