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HUL to return cash after disappointing Q3

Net drops 22% as demand stays weak; volumes grow 6% due to price custs; co to return Rs 2,187 crore to shareholders signalling weakening prospects

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There seems to be no uptick in consumption soon.

Hindustan Unilever Ltd (HUL), India's top consumer goods firm, missed analysts' estimates and reported 22.42% year-on-year fall in third quarter net profit at Rs 971 crore as rural demand stayed in weak.

Domestic sales at the firm, considered to be consumption barometer in the country, grew 3.3% during October-December, the slowest pace in 10 years.

However, overall volumes grew 6% in line with the last few quarters. The company said net profit was hit due to phasing out of excise duty benefits and price cuts.

Signalling weak prospects and not many avenues to deploy cash, the company is planning to return Rs 2,187.33 crore cash to shareholders.

The company Board has approved transfer of Rs 2,187.33 crore from its general reserves to the profit & loss account to be paid to shareholders. A high court nod for the proposal is expected in six months.

Sanjeev Mehta, managing director and CEO, HUL, said, "We have to see what comes out once the approval is received – from the high court and shareholders – and based on what gets finalised then, cash will be returned to the shareholders. The idea behind this exercise is to make our balance-sheet lean," he said.

The company's operating profit, at Rs 1,349 crore, was up 7% with a margin expansion of 60 basis points. The cost of goods sold was lower by 290 basis points driven by lower commodity costs as well as strong savings programme. Advertising and promotion spends were up 16% at Rs 160 crore and constituted 14.5% of the sales.

P B Balaji, chief financial officer, said the market growth has moderated on rural slowdown, and is led by volumes. "Commodity costs have softened further this quarter and competitive activity remains high. So this is a benign commodity environment, and in this context we have delivered another quarter of profitable volume-led growth," he said.

Net sales for the quarter rose 3.21% to Rs 7,822.86 crore while expenses at Rs 6,632.34 crore were up were up 1.78% over the year-ago period. The tax expense was down 15.70% to Rs 437.20 crore.

"The corporate tax rate of 31% is broadly in line with our expectations, and as fiscal benefits are weaning off the effective tax rates have gone in this quarter up by 175 basis points. We believe we are now reaching the peak rate that will be ther for a while now," Balaji said.

The company is also working on its natural products portfolio as it launched the Ayush range of products exclusively on e-commerce. The company is also set to re-enter the ayurveda product portfolio with acquisition of Kerala-based hair oil brand Indulekha from Mosons Extractions for Rs 330 crore.

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