HUL net cheers but volumes disappoint

Reports 10% growth in net profit at Rs 1,174 cr

Aided by a one-time write-back of employee provision benefits, the country's largest consumer goods company Hindustan Unilever (HUL) reported 10 per cent growth in net profit at Rs 1,173.9 crore for the quarter ended June 2016 versus Rs 1,069.2 crore a year ago. Although, eight analysts in a Bloomberg poll said HUL had beaten their estimates on net profit by 8.5 per cent, it is largely due to exceptional or one-time income of nearly Rs 71 crore. Adjusted profit would have fallen short of expectations.

However, if the company had reason to cheer on net profit, that wasn't the case on the volume growth and revenue growth fronts. For the second straight quarter, HUL reported only a four per cent volume growth, lower than the six-seven per cent band it had seen in previous periods.

Analysts at Emkay Global, in their first cut analysis (prior to the analysts call held by HUL), said, "Net revenues at Rs 8,128 crore was marginally below our expectation, underlying volume growth of four per cent year-on-year was below our estimate of five per cent."

Revenue growth was marginally up 3.6 per cent for the June quarter, touching Rs 8,128.2 crore, down nearly 6.2 per cent according to Bloomberg consensus estimates.

Sanjiv Mehta, managing director and chief executive of HUL, said the fast moving consumer goods (FMCG) market growth in the quarter under review, as well as going forward, would remain muted, presenting challenges for most players. "Volume growth for the overall (FMCG) market has been zero to negative. We are ahead of the market at four per cent. While the monsoon and implementation of the Seventh Pay Commission recommendations are positives for the market, in the near-term, growth will be muted," he said.

During the quarter, earnings before interest, taxes, depreciation and amortisation (Ebitda) was up 8.2 per cent to Rs 1,636 crore from Rs 1,512 crore a year ago, while Ebitda margin (or operating profit margin) grew to 20.1 percent from 19.3 percent year-on-year (y-o-y). Positively, Ebitda was a tad ahead of Bloomberg estimate of Rs 1,625 crore.

HUL benefited from lower input costs during the June quarter, resulting in a 100-basis point reduction in cost of goods sold (cost of raw materials consumed, purchases of stock-in-trade and changes in inventories of finished goods, work-in-progress, stocks). Segment-wise, personal care revenue was marginally up 2.1 percent to Rs 3,898.6 crore against Rs 3,817.1 crore y-o-y. Personal care earnings before interest and tax (Ebit) margin was up 0.3 percent to Rs 1,021.4 crore from Rs 1,018.4 crore a year ago. HUL's homecare division revenue climbed 6.8 per cent to Rs 2,559.6 crore versus Rs 2,397.2 crore a year ago. Homecare Ebit margin rose 22.4 per cent to Rs 355 crore against Rs 290.1 crore a year ago. But, HUL's foods business Ebit margins fell 20.6 per cent to Rs 17 crore versus Rs 21.4 crore a year ago.

Foods revenue, however, were up 4.7 per cent to Rs 267 crore versus Rs 255 crore a year ago.

Refreshment revenue was up 5.5 per cent at Rs 1,191 crore against Rs 1,130 crore and Ebit margin increased 7.5 per cent to Rs 192 crore against Rs 178.6 crore in the corresponding period last year. The results are as per Ind AS, the new accounting norms applicable from April 1, 2016.

HUL shares closed 2.04 per cent down at Rs 920.45 on the BSE on Monday. It hit a low of Rs 910.40 and a high of Rs 947 in Monday's trade on the exchange.
KEY DECISIONS

• Change in management: Punit Misra, currently executive director and V-P, sales and consumer dept, has quit. Srinandan Sundaram, currently V-P, skin care, will take over from Misra
   
• Manufacturing unit in Assam: Has decided to set up a new unit in Assam with an investment of Rs 1,000 cr
   
• Approved divestment in Kimberly-Clark Lever: Board has approved to divest its 50 per cent stake in Kimberly-Clark Lever to its joint venture partner