HUL Q3 earnings indicate strong consumer sentiment

Hindustan Unilever Limited (HUL), India's largest fast-moving consumer goods (FMCG) company, reported a 9% year-on-year increase in net profit to ₹1,444 crore for the quarter ended December 2018, reflecting strong consumer sentiment and growth in consumption in the country.

“In the near term, demand is likely to be stable. We will keep a close watch on the macroeconomic environment and respond with agility,” said Sanjiv Mehta, chairman and managing director, HUL.

Antique Stock Broking said in a note, "We believe that HUL will continue to witness 8-9% volume growth, led by a shift from unorganised to organised in the home care segment for the next one year. The company's cluster-based marketing and distribution strategy will aid revenue performance."

During the quarter, Unilever bought GlaxoSmithKline’s Horlicks and other consumer healthcare nutrition brands, and merged their Indian units, making HUL's food business one of the largest in the country. The merger valued GSK Consumer Healthcare India at ₹31,700 crore.

The maker of Dove and Rexona soaps said in a filing to exchanges that standalone revenue grew 11.3% year-on-year to ₹9,558 crore, driven by revenue from the beauty and personal care segment, which grew 10.9% to ₹4,539 crore.

“Personal wash growth continued to be driven by premiumisation of the portfolio. Skincare witnessed excellent growth enabled by stellar execution of winter portfolio,” HUL said in a statement.

Revenue from the home care segment, too, jumped 14.8% to Rs 3,148 crore on a year-on-year basis, while that of food and refreshment grew 9.9% to Rs 1,728 crore.

“Beverages delivered good growth by leveraging the opportunity in the mass segment and driving premiumisation through green tea. Ice cream and frozen desserts sustained its growth momentum,” the company said.

HUL’s earnings before interest, tax, depreciation, and amortisation (Ebitda) rose 21.8% from the December quarter of 2017 to ₹2,046 crore.

“We have delivered another strong performance in the quarter, with double-digit volume growth and improvement in margins. Our focus on strengthening the core and leading market development by tapping into emerging trends has been yielding results across categories. We are making headway in [our] ‘Reimagining HUL’ agenda by building an organisation which is purpose led and future fit,” Mehta said.

Staff cost was lower by 5.3% and ad spends up 7.1% year-on-year, noted brokerage firm Edelweiss Securities.

“Hindustan Unilever’s [third quarter] revenue, Ebitda, and PAT (before exceptional items) growth of 11.3%, 21.8% and 17% [year-on-year] was in line with our estimates. The 10% volume growth (highest over the past 27 quarters) translates to 10.5% two years average volume growth (7% in the second quarter of FY19 and 6.1% in the first quarter of FY19) was stellar,” said Abneesh Roy, senior vice-president (research) at brokerage firm Edelweiss Capital in a post-earnings note.

The brokerage firm continues to remain optimistic on volume offtakes for strong consumer staples companies.

Led by income growth, India is poised to become a truly middle-class economy in the near term that is expected to lead to a consumer boom. With the largest listed FMCG entity delivering positive results for the quarter, the future looks bright in poll-bound India.