Slowdown-hit Hindustan Unilever to keep strategies unchanged

The slowdown has squeezed most fast moving consumer goods (FMCG) companies over the last few quarters, but Hindustan Unilever Ltd (HUL) has escaped unscathed.

The domestic FMCG giant reported a 10.77% year-on-year increase in January-March quarter's net profit at Rs 872 crore, and an 8.9% growth in net sales to Rs 6,935 crore that included exceptional income.
Ahead, it has decided to stick to its strategies and the growth model built on volumes game.

Sridhar Ramamurthy, chief financial officer, HUL, said the company's strategy and growth model remain unchanged despite the industry experiencing slowdown for quite sometime now.

"It (slowdown) continued in this quarter as well, both in terms of value and volume. In particular, premium segments and discretionary categories were under pressure," he said.

HUL's domestic consumer business rose 9% yoy with a volume growth of 3% yoy. Soaps and detergents division grew 9.6% yoy aided by price hikes in the skin cleansing segment and healthy growth in premium products in laundry segment.

Personal products division grew 8.3% yoy, while the beverages division posted a growth of 7.5% helped by double-digit increase in tea sales.

Operating profit margin (excluding other operating income), however, fell 46 basis points yoy to 13.3% due to increase in staff costs and other expenses.

Terming Q4 as "another quarter of competitive and profitable growth", Ramamurthy said the company's domestic consumer business grew 9% during the reporting quarter with a volume growth of 3%. "Both were ahead of market growth rate. Same quarter last fiscal, we had higher sales due to loading-in in advance because of a transport strike; as a result the base quarter was inflated. So when you look at our intrinsic underlying volume growth it's really 4%, same as what we delivered in the December quarter," he said.

Sanjiv Mehta, CEO and MD, HUL, said that slowdown is a reality and growth has slowed in comparison to what it was back in 2012 or for that matter 2013.

"Growth has slowed down across geographies both urban and rural and across the channels. Our perspective/game is very clear that we are going to grow ahead of the market that's what we aim for."

"We are going to ensure that we spend competitively behind our brands and grow them. We are going to ensure that our investments are not just behind the core but also in developing the nascent categories while also aiming for margin improvement. All this has led to sustained performance over the years, and that's what intend to do going forward as well," said Mehta.

Analysts have mixed views.

Ritwik Rai, analyst - FMCG, Kotak Securities, said HUL's Q4 revenues were broadly in line with expectations.

"Operating profit (Ebitda) has come in 4% ahead of our expectations, on the back of lower than expected input and advertising and promotions (A&P) expenses (barely 2% yoy growth). Profits in the beverage segment surprised us positively (20% yoy growth), while personal products' profit growth was weak (5% yoy), even on a fairly low base," said Rai.

While operating margin expanded 30 basis points, operating profit was up 11%. The company had stepped up spends on advertising, which was, however, lower for soaps and detergents, where cost inflation was high.

"As for bottomline is concerned, profit after tax before exceptional items was up 7% and net profit up 11% in the quarter," said Ramamurthy.

"While profits are ahead of expectations, the outperformance has been enabled by weaker investments in brands (low A&P growth), weakness in personal products' profit growth is an area of concern (the segment accounts for about 45% of the company's profits)," said Rai.

Terming HUL's Q4 net profit as below estimates, V Srinivasan, research analyst - FMCG, Angel Broking, said during the quarter, the company had exceptional income of Rs 66 crore arising out of sale of properties and reduction in provision for retirement benefits.

"After adjusting for the exceptional income, the company's net profit rose by a modest 7% yoy to Rs 832 crore," he said.