HUL says inflation no longer a concern with sales & profits growing 4% in Q2

Mumbai: India’s largest consumer goods firm Hindustan Unilever (HUL), considered a proxy for broader consumer sentiment in the country, reported a 4% increase in both net profit and sales in the September quarter, saying the market was gradually recovering as inflation is no longer a concern.

This revival, however, is largely led by urban markets, the company said.

Demand in rural areas has fallen on a two year basis although the pace of decline has reduced significantly over both sequential and from a year earlier, it said.

Volumes rose 3% in the second quarter, indicating three-fourths of its growth was driven by demand instead of price rise.

Quarterly sales at Unilever’s India unit rose to ₹15,027 crore from ₹14,514 crore a year earlier, while net profit grew to ₹2,717 crore from ₹2,616 crore a year ago.

Gross margins increased by 700 basis points (bps) in the second quarter, while earnings before interest, taxes, depreciation, and amortisation (EBITDA) margin rose 130 basis points to 24.6%. One basis point is a hundredth of a percentage point.

In the quarter, there was a one-off credit in favour of HUL from past indirect tax litigation which helped both topline and bottom line.Excluding the one-off, sales expanded 3% while volume grew 2%.

Ahead of the results, the company’s share price closed unchanged at ₹2548 apiece on the BSE.

“The numbers are in transition right now, but the market is recovering, faster in urban and lesser in rural areas. On a two-year basis, it has sort of come back where it was. People have begun to come back to consumption,” Rohit Jawa, managing director at HUL, said Thursday after the earnings announcement.

The company said growth will be driven largely through volumes and price growth will be flat or even negative in the next quarter.

“We have been taking prices down for the last 8-9 months and as we transition from high to low prices in the market, that takes time, and the volume recovery will be gradual. It is good for us to be pressurised on volume because that’s really more sustainable, more structured, and much more fundamental.”

HUL, citing NielsenIQ data, said the FMCG market saw 7-8% volume growth during the quarter compared to 5% a year ago. However, value growth was 3%, significantly down from 14% a year ago due to price cuts. Urban volume growth was 10% while rural growth was 7%. A year ago, demand in cities and villages had fallen 3% and 9% each.

“Inflation moderating is helping. Upcoming festival season with lower inflation and good urban growth will support demand, and the overall economy we know is resilient,” said Ritesh Tiwari, chief financial officer at HUL.

HUL said it is seeing the resurgence of small and regional players, many of which had vacated the market during the peak of inflation.