HUL’s earnings show lack of rural demand

net profit climbed 2,552 crore for the three months ended 31 March 2,327 crore a year ago, the company said in a statement to the stock exchanges on Thursday. Sales up 10.6% 14,893 crore to 13,462 crore a year ago, while the cost increased by 11% 11,710 crores. A Bloomberg survey of analysts expected the company to report a profit. 2,605 crores. Rising inflation has cooled consumer demand in India, with rural areas and low-income groups more vulnerable to price increases. HUL, however, expects volume growth to accelerate as commodity prices soften and consumption habits adapt to higher costs.

The company reported 4% underlying volume growth and 7.5% value growth for the March quarter, although volume growth slowed slightly from the previous quarter. HUL’s performance is viewed as a barometer for broader Indian consumer sentiment.

On rural demand, Managing Director and CEO Sanjeev Mehta said that the market is showing signs of improvement. “It is indicating that the depth of the negative volume has reduced,” he said.

For the consumer goods industry overall, quarterly volume in rural areas declined 3% year-over-year, while improving sequentially, while it declined 7% for the full year. He added that while rural sales continued to decline, the quantum of decline during the quarter narrowed.

FMCG market growth shows gradual recovery with lower level of rural slowdown; The total FMCG market volume which was declining earlier has now become flat.

During the March quarter, inflation eased sequentially, though commodities still remained elevated relative to the long-term average, Chief Financial Officer Ritesh Tiwari told reporters during the company’s post-earnings call on Thursday.

Earnings before interest, tax, depreciation and amortization (EBITDA) for the March quarter 3,471 crores. The EBITDA margin stood at 23.7%. The company’s advertising and promotion spending increased 7.5% during the quarter but was flat sequentially.

The company’s top management said the operating environment is likely to remain volatile in the near term. “Looking ahead, the near-term operating environment is likely to remain volatile. Price and volume growth will rebalance as inflation eases on account of lapse of higher base and sequential softening in some commodities. The market volume will gradually recover as market volumes recover, said Mehta, who will retire on June 26. HUL increased prices by 18% across its portfolio, facing 30% Net Material Inflation (NMI). “We have increased the price of 60% of NMI.” In the March quarter, net material inflation eased to 12%.

The reduction in commodity prices allowed HUL to pass on benefits to consumers through price cuts and increased package sizes, encouraging purchases. Mehta emphasized on the company’s commitment to maintaining the value-price balance and not losing market share.

“We are very clear, like we have not passed on the entire cost increase to the consumers, we are very conscious, we have to maintain the cost-price equation. And if the commodity prices go down, we will pass on the benefit to the consumers. We will absolutely Are clear We will not lose market share. With inflation softening, and in fact deflation, and we being able to get the price-price equation right, I don’t see any reason why the volumes in rural areas would not pick up as well,” he said. For the full year, the company’s sales increased by 16% 58,154 crore, with an underlying volume growth of 5%. Company’s profit after tax 9,962 crores. Beauty and personal care brand Lux ​​and Pond’s surpassed during the year 2,000 crore each in sales. Surf Excel became the first brand in the company’s portfolio to cross $1 billion in sales, HUL, Mehta said, had 19 brands with sales 1,000 crore each. Analysts at ICICI Securities said HUL’s earnings on the revenue and operating profit front came in below our estimates. “There has been a significant reduction in major crude and palm oil related commodities over the last six to eight months, resulting in a gradual improvement in margins for the company. However, the extent of the improvement is less than we estimate. We believe the company is passing on the benefit of low commodity prices to customers in the form of price reductions or faster volume growth.”

During the quarter, the company’s home care business reported segmental revenue growth of 19% compared to a year ago. Meanwhile, the beauty and personal care business grew 10%, with a broad performance across categories. The soap portfolio saw further price cuts with softening in palm oil.

However, there was a weak growth of 3% in food and refreshments. The tea category witnessed a downgrade in consumer ratings due to higher inflation in premium teas as compared to loose teas. Foods grew mid-single digits due to strong performance in ketchup and food solutions.

The company’s food and refreshment business reported weak performance due to tea price cuts and category slippage; The ice cream business has suffered due to unseasonal rains. However, Avneesh Roy of Nuwama Securities said gross margin has started expanding.

“We expect volumes to recover gradually due to high levels of cumulative inflation and the fact that consumption habits usually recover with a lag. Under these circumstances, we will continue to manage our business with agility to grow our consumer franchise while maintaining margins in a healthy range. Our focus is on ensuring the right price-value equation for competitive volume growth, building back gross margins and ramping up A&P investments,” Tiwari said.

HUL shares fell 1.46 per cent 2,468.20 on the BSE on Thursday, undercutting the benchmark Sensex’s 0.58% gain.