Hindustan Unilever (HUL) reported a 21.2 per cent year-on-year growth in net profit to Rs 1,848 crore for the July-September quarter (Q2) of FY20. Growth was aided by lower corporation tax, which came into effect last month. The Bloomberg consensus estimate had pegged net profit at Rs 1,802 crore.
For Q2, HUL’s corporate tax rate was 22 per cent versus 30.5 per cent in FY19. On a full-year basis, the effective corporation tax rate would be 27 per cent, HUL’s Chief Financial Officer Srinivas Pathak said, after taking into account an average for the four quarters. But volume growth for Q2 remained the same as reported in the June quarter, coming in at 5 per cent, though some analysts said it was ahead of their estimates of 4 per cent for the period.
This is the third straight quarter when HUL posted single-digit volume growth. In the March quarter, volume growth was 7 per cent. Sanjiv Mehta, chairman and managing director, admitted that rural growth had decelerated further in Q2 versus the June quarter, when urban growth was on a par with rural growth.
“It is now only 0.5 times ahead of urban growth, pointing to a sharp slowdown in rural areas,” he said.
Prior to the June quarter, rural was ahead of urban by 1.3 times, alluding to a sustained slowdown in rural areas in the last six months, Kaustubh Pawaskar, senior research analyst at brokerage Sharekhan, said. "Deceleration in rural growth rate has been consistent in the past six months. Companies such as HUL get 40 per cent of their sales from rural areas. So there is an impact as a result," he said.
Nielsen had recently indicated the same, saying subdued growth in rural markets in the June quarter contributed 57 per cent to the slowdown in the FMCG segment. It had also said that Q2 was expected to be no different, with the slowdown likely to be sharper. Nielsen had also lowered its CY19 growth forecast for the FMCG market, saying it would be in the region of 9-10 per cent versus 11-12 per cent estimated earlier.