HUL shares fall over 3% post disappointing Q3

Shares of Hindustan Unilever Limited (HUL) declined over 3% in intraday trade on Saturday after the FMCG major reported lower-than-expected earnings in the December quarter of FY24. The sentiment was dented after brokerages cut target prices on the stock after the company reported muted earnings amid a demand slowdown. Morgan Stanley has lowered the target price to ₹2,464 from ₹2,502, while maintaining its ‘equal-weight’ call on the stock. HSBC has downgraded HUL to ‘reduce’ and slashed the target price from ₹2,700 to ₹2,350 per share.

Weighed down by development, HUL shares dropped as much as 3.4% to ₹2,523.85 after opening lower at ₹2,514.15 against the previous closing price of ₹2,564.75 on the BSE. The market capitalisation of the FMCG major dropped to ₹5.83 lakh crore, with 0.56 lakh shares changing hands over the counter by 1:00 PM.

The Mumbai-headquartered company has reported a net profit of ₹2,519 crore in Q3 FY24, up marginally by 0.55% from ₹2,505 crore in the same quarter of last fiscal year. Sequentially, the net profit dropped 7.28% from ₹2,717 crore in September quarter of FY24.

HUL’s sales fell 0.38% to ₹14,928 crore from ₹14,986 crore in the corresponding period last year. Quarter-on-quarter (QoQ), revenue dipped 0.6% from ₹15,027 crore in the September 2023 quarter. The gross margin and advertising and promotional (A&P) increased 400 bps and 270 bps, respectively, as compared to year-ago period.

On the operating front, EBITDA was flat at ₹3,540 crore versus ₹3,537 crore in the year ago period, while the margin improved by 10 basis points to 23.7%. “We continue to manage our business dynamically by ensuring right price-value equation and investing competitively behind our brands and long-term capabilities,” HUL says in the exchange filing.

During the quarter under review, the underlying volume growth (UVG) stood at 2%, with home care and beauty & personal care, which constitute about 75% of its business, witnessing volume recovery and mid-single digit growth in UVG. Foods & refreshment, on the other hand, saw a low-single digit decline in UVG, primarily due to pricing taken in the year to offset the impact of higher commodity cost.

Rohit Jawa, CEO and Managing Director, says, “HUL has delivered another quarter of resilient performance with strong operating fundamentals amidst a challenging operating environment. Our focus on providing the right consumer value, excellence in execution, increased investments behind brands and capabilities, premiumisation and market development continues to serve us well.”

“Looking forward we expect gradual recovery in market demand to continue aided by increased government spending, recovery in winter crop sowing and better crop realisation. Rural income growths and winter crop yields are key factors that will determine the pace of recovery,” he says.

Jawa further states that the company remained focused on driving competitive volume growth whilst stepping up investment behind its brands and long-term strategic priorities. “We remain confident of the mid to long term potential of the Indian FMCG sector and HUL remains well positioned to unlock this opportunity whilst navigating the short-term challenges.”

Segment wise, home care posted a marginal decline in revenue with mid-single digit UVG in the quarter. However, on a 2-year CAGR basis, the business delivered a strong double-digit growth of 14% with high single digit UVG.

In the beauty & personal care segment, revenue remained flat with mid-single digit UVG. Skin Cleansing revenue declined due to the impact of price reductions taken to pass on the benefits of lower commodity costs to consumers, while delayed winter impacted skin care performance in the quarter. Hair care delivered volume led double-digit growth, while oral care grew mid-single digit led by Closeup. Key launches in this quarter include Glow & Lovely Powder finish crème, New active skin barrier care range by Simple, Sunsilk hair serums, Close-up naturals range and Lakme’s range of make-up products, the company says in its earnings report.

Meanwhile, foods & refreshment reported a revenue growth of 1%. Green Tea and flavoured tea performed well, while coffee grew in double-digits driven by pricing. “Health food drinks delivered competitive modest price-led growth driven by Plus range. Foods Solutions, Mayonnaise and Peanut Butter continue to clock strong growths. Ice Cream grew in mid-single digits on a high base.”

During the quarter, the company launched Knorr Korean K-Pot noodles and Bru Gold in Vanilla, Caramel and Hazelnut flavours.

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