HUL's revenue, net profit, volume surge in Dec quarter as demand picks up

Volume growth at 4%; urban markets buoyant

Hindustan Unilever (HUL), the country’s largest consumer goods company, saw its profit, revenue, and volume for the quarter ended December 31, 2020 (Q3) rise as demand improved steadily across markets. This is the first quarter since the Covid-19 lockdown last year when urban markets have shown buoyancy, analysts tracking the company said, pointing to a gradual recovery in sentiment in cities, which were most impacted by the pandemic. The stock fell 0.34 per cent to end the session at 2,390.

HUL derives 60 per cent of its sales from urban areas and the rest from rural areas. Rural demand, said HUL Chairman and Managing Director Sanjiv Mehta, remained high during the quarter, in line with the trend that has been visible since June.

HUL’s net profit rose nearly 19 per cent over the year-ago period to Rs 1,921 crore in Q3, while its revenue rose 20.9 per cent to Rs 11,862 crore. Revenue includes net sales plus other operating income. Excluding the nutrition business acquired from GSK Consumer, comparable revenue growth in Q3 was 7 per cent compared to last year, with underlying volume growth at 4 per cent.

This is the first time in four quarters that HUL’s volume growth has touched 4 per cent, after declining 7 per cent and 8 per cent, respectively, in the March and June quarters. 

A consensus estimate of analysts polled by Bloomberg had pegged net profit at Rs 2,052 crore and revenue at Rs 11,566 crore in Q3.

“Rural demand has remained resilient and strong. Urban demand, which was weak earlier, has now improved. But what will further help urban demand will be mobility, which is directly linked to the vaccine roll-out. We are pleased with the government’s vaccine plan and if it can be executed with speed, that will help demand tremendously, especially in urban areas,” Mehta said in a post-results press briefing on Wednesday.

Mehta warned that inflationary pressures were building up in select commodities and would have to be managed judiciously with price hikes. The company’s operating margin for the quarter stood at 24 per cent, 90 basis points lower than year ago. Analysts had expected the company to report margins of around 25 per cent in Q3.

Commodity costs, especially for tea and palm oil, said analysts, were inflated during the quarter, prompting HUL to take a double-digit price hike in tea and a 2.5 per cent price increase in its skin cleansing portfolio. Currently, HUL is in the process of taking another price rise of 2.5 per cent in its skin cleansing range, HUL’s chief financial officer, Srinivas Phatak, said.

“If you look at skin cleansing, one would have to increase price between 7 and 9 per cent to deal with inflationary pressures. We are at around 5 per cent in terms of price hikes,” Phatak said.

He said HUL’s homecare business grew in double-digits in Q3, while its beauty and personal care segment clocked a 9 per cent YoY rise in revenues. Foods and refreshment, Phatak said, sustained the momentum in Q3, growing at 19 per cent in terms of sales versus a year ago. The nutrition business, led by Horlicks, grew in double-digits as the business returned to normalcy post restoration of disrupted supply lines. Shares of HUL fell 0.34 per cent in a weak market on Wednesday to close at Rs 2,390.75 on the BSE.