HUL reports lowest volume growth in six quarters as rural show disappoints

Revenue, net profit miss analysts' estimates even as margins improve

Hindustan Unilever
A pedestrian walks past the logo of Hindustan Unilever Limited (HUL) at its headquarters in Mumbai (Photo: Reuters)

Hindustan Unilever (HUL), the country’s largest consumer goods company, reported its lowest volume growth in six quarters for the January-March period (Q4), on the back of moderation in rural demand.

For the quarter under review, HUL saw 7 per cent volume growth against 11 per cent in the year-ago period. From the December 2017 quarter to December 2018 quarter (Q3FY18 to Q3FY19), HUL reported volume growth in the region of 10-12 per cent, after gaining from price cuts under the goods and services tax regime, coupled with consumer uptick in urban and rural areas.

On Friday, Chairman and Managing Director Sanjiv Mehta said that rural growth, which was earlier 1.3 times urban growth, was now in line with urban growth, indicating slowdown in rural areas.

Market research agency Nielsen had last month hinted at the same, stating that the fast moving consumer goods (FMCG) market grew 13.6 per cent in Q4, versus 15.9 per cent and 16.5 per cent in the December and September quarters, respectively.

While Mehta said that the FMCG market would bounce back in the near term, Nielsen lowered its forecast for CY19, saying growth would be around 12 per cent as against 14 per cent in CY18.

HUL’s net profit rose 13.8 per cent year-on-year (YoY) to Rs 1,538 crore in Q4, lower than the Bloomberg consensus estimate of Rs 1,611 crore. Revenue (net sales plus other operating income) rose 9.3 per cent YoY to Rs 9,945 crore, marginally lower than the Street’s estimates of Rs 10,001 crore. Net sales, meanwhile, grew 9 per cent YoY to Rs 9,809 crore.

HUL reports lowest volume growth in six quarters as rural show disappoints

The only respite for the company was in terms of operating profit, or earnings before interest, tax, depreciation, and amortisation, which rose 13.2 per cent in Q4FY19 over Q4FY18 to Rs 2,314 crore. This was in line with the consensus estimate of Rs 2,348 crore.

Operating margin expanded 90 basis points to 23.3 per cent in Q4. A basis point is one-hundredth of a percentage point.

HUL also declared final dividend of Rs 13 per share on Friday. When added to the interim dividend of Rs 9 per share announced earlier, the total dividend stands at Rs 22 per share for FY19. This is 10 per cent higher that the total dividend of Rs 20 per share given in FY18, said Chief Financial Officer Srinivas Phatak.

Shares of HUL fell more than 2 per cent on Friday to close at Rs 1,692.80 apiece on the BSE, before the earnings announcement, which came after market hours. On the segment front, revenue from the home care business rose 12.9 per cent to Rs 3,502 crore. Revenue from the beauty and personal care segment grew 7.3 per cent to Rs 4,393 crore. Revenue for the food and refreshment segment rose 10.4 per cent to Rs 1,916 crore.

Kaustubh Pawaskar, research analyst at Sharekhan, said: “Weakening demand in the rural market will impact performance in the near term.