Hindustan Unilever beats St as consumers return

After months of sluggish growth, Hindustan Unilever Ltd (HUL) trumped the Street in the January-March quarter as consumers bought more of its products and input costs fell aiding margins.

Net sales at the leading fast moving consumer goods (FMCG) firm rose 8.9% to Rs 7,555 crore in Q4 as its domestic consumer business grew 8.6%. Volume growth was 6% year on year.

As a result, standalone net profit grew 17% to Rs 1,018 crore over a year ago.

The profit was also aided by one-time gain of Rs 179.4 crore from sale of properties/subsidiary Brooke Bond Real Estate Pvt Ltd.

Harish Manwani, chairman, HUL, said, while markets continue to remain soft there was some pick up in the recent months.

"Despite market challenges, our strategic agenda remains unchanged as we continue to manage our business even more dynamically for growth that is consistent, competitive, profitable and responsible," he said.
Segment-wise, soaps and detergent sales grew 5% as personal products rose 13%. Beverages and packaged foods sales grew 11% and 14%, respectively.

The company crossed yet another milestone as sales crossed Rs 30,000 crore in fiscal 2015. HUL also passed on falling input costs and duty benefits to consumers with price cuts of 5-6% across product categories.
The company's advertising and promotion spends rose Rs 188 crore to Rs 1,027.9 crore.

The company sees volumes and margin improvements sustaining ahead. This, company officials said, will be done by managing the business dynamically while also focusing on market development and driving continuous improvement.

P B Balaji, chief financial officer, HUL, said, "In the near term, pace of market recovery will be largely dependent on how the rural segment fares. Headwinds are likely to continue for one more year and the biggest of headwinds was in the current quarter. The ensuing quarter (June-September) is when it actually peaks and comes down in the course of the year," he said.

Weather conditions this year have been very volatile with rain and hailstorms playing a major spoilsport for the rural market. And the FMCG industry will be closely following the consumption pattern in these markets.

Sanjiv Mehta, CEO and managing director, HUL, said looking at the year gone by, the markets have been the softest. Quoting Nielsen reports, he said, "Volumes for the FMCG industry put together have been under 1% and the value growth has been between 5% and 6%. Within this, the rural market has grown faster than urban."

He said it will be inappropriate to pick up a quarter no definitive trend has yet emerged. "We will have to wait another quarter or two before we can say there is a trend shaping up. So it's still early days," said Mehta.

On price cuts ahead, he said it depended on various factors including commodity prices. "If you look at the oil price, from a bottom of mid-40s it's gone up to 60s. Rupee that was 62 to a dollar has now breached 64. We take a lot of factors into consideration before we look at the pricing. The economic scenario doesn't warrant more price cuts at this stage," said Mehta.

Manwani added, "The price drops we took were not promotions or temporary but were based on a certain commodity outlook. If that (commodity) outlook changes we will take a call accordingly."

Ritwik Rai, analyst, Kotak Securities, said, HUL's revenues were inline with estimates, while operating profit marginally missed estimates, on lower gross margins. "At the segment level, revenue and profit growth in soaps and detergents came in relatively lower than our expectations, while growth in personal care has outperformed expectations. We see sustenance of industry-beating growth, robust volume growth (+6%, y/y) overall, and double-digit growth in personal products as the key positives of the results."